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Dollar hits 2008 high vs basket of major currencies

Tue, Aug 19 2008, 10:21 GMT
by Benny Menashe

Finotec Group Inc.

The dollar renewed its broad rally, lifted to its highest for the year against a basket of currencies by another dip in commodities prices and ongoing worries about slowing global economic growth. The dollar is trading around the levels of 1.4665 against the Euro, around the levels of 110.00 against the Yen and around the levels of 1.8580 against the Sterling.

Falling equities around the globe, another wave of concern over the financial system and tightening strains in money markets are all feeding the view that the United States will not be the only one to suffer weak growth and fragile asset markets. The latest dip in commodity prices -- oil slipped below $112 a barrel and metals came under pressure -- lightens inflationary pressures, thus paving the way for central banks around the world to cut interest rates. The central banks most likely to cut rates in the coming months could be those in Europe, Australia and New Zealand, thus putting downward pressure on their currencies versus the dollar.

At the moment the market has decided to focus on the weakness of the euro zone and hasn't taken a balanced view of risks in the U.S.The near-term trend for the euro remains to the downside. But given the extent and speed of the euro's decline over the past month, a near-term bounce back up toward $1.50 could be a more attractive selling level. Renewed concerns the U.S. Treasury might have to bail out loss-making mortgage giants Fannie Mae and Freddie Mac, on top of a 7 percent fall in Lehman Brothers on fears of heavy third quarter losses, suggest all is not well in the U.S. financial system. While things in the U.S. may be bad they are likely nearing a bottom, while in the rest of the world things are just about to deteriorate

Today Under The Spot Light

“The euro could dip below $1.45 toward $1.4440 if the ZEW index comes in weaker than expected”, Reported from finotec’s dealing desk. Analysts expect the ZEW economic sentiment index to bounce back slightly to -62.0 from -63.9 in July, thanks to the recent oil price slide and the export-friendly decline in the euro.

The next main focus for investors is the July report on U.S. building permits and housing starts at 1230 GMT for clues on whether the U.S. housing market, widely considered to be at the root of the year-long global financial crisis and a major hurdle to a U.S. recovery is close to a bottom.

Today's Economic Events

Published on  Tue, Aug 19 2008, 10:26 GMT