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Dollar gains momentum as bank withstand credit crunch

Fri, Jul 18 2008, 10:40 GMT
by Benny Menashe

Finotec Group Inc.

The greenback headed for a weekly advance against the euro, rebounding from a record low on indications that U.S. investment banks will withstand the credit market losses arising from the nation's subprime mortgage collapse. ``The dollar is getting a boost as the markets correct excessive pessimism about the U.S. financial sector,'' said Joseph Kraft, head of capital markets in Tokyo at Dresdner Kleinwort, an investment bank owned by Germany's Allianz SE. ``The financial turmoil, shown by a sharp decline in stocks, was given a reprieve at least. Major Wall Street investment banks can survive.'' The EUR/USD currently trading at $1.5841 as of 8:16 am, GMT.

The Dollar also rose against the British pound on speculation the U.K. government will boost borrowing as Chancellor of the Exchequer Alistair Darling introduces new spending guidelines. The pound dropped to $1.9987 from $2.0038. The Financial Times reported, without citing sources, that the U.K. government's new spending rules would allow it to break limits on public sector debt. A Treasury spokesman said the report was pure speculation. ``There's sterling selling on the back of this report and it looks like it will continue,'' said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney, referring to another term for the pound. ``The fact that the Treasury would go this far shows that times are desperate and the economy must be in a pretty poor state.'' GBP/USD currently trading at $1.9922 as of 8:19 am, GMT.

The U.S currency’s advance against the yen may stall at 107.17, said Tomoko Fujii at Bank of America Corp. in Tokyo, citing technical charts that traders watch to predict price movements. The so-called resistance level for the dollar, where sellers may outweigh buyers, is its 200-day moving average, she said. The U.S. currency last closed above the 200-day moving average on Aug. 8. ``That level is becoming an important key resistance,'' said Fujii, head of economics and strategy for Japan at the second-largest U.S. bank. ``It should be hard to break through it.'' USD/JPY currently trading at 106.37 as of 8:25 am, GMT.

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Published on  Fri, Jul 18 2008, 10:45 GMT