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Dollar fall against majors as a manufacturing slump is predicted

Thu, Aug 21 2008, 10:45 GMT
by Benny Menashe

Finotec Group Inc.

The greenback fell the most in more than a month against the yen on speculation a manufacturing industry contraction and credit-market losses will prompt the Federal Reserve to keep the interest rate at 2%. The U.S. currency also slid against the euro on concern futures traders will pare bets on gains in the dollar, which has strengthened against all 16 of the most-active currencies this month. ``U.S. credit concerns seem to be causing investors to become risk averse,'' said Toshihiko Sakai, head of trading in foreign-exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. ``These worries are fueling buying of the yen.'' The EUR/USD is currently trading at $1.4800 as of 7:41am, GMT. The USD/JPY is trading at 108.84 as of 7:42am, GMT.

The sterling fell against the euro before a government report that may show retail sales fell last month, adding to speculation that the economy is headed for a recession. Speculation the British retailers slipped 0.2 percent, after dropping in June by the most since at least 1986. The pound dropped yesterday after the minutes of the Bank of England's August policy meeting showed policy makers judged inflation risks ``have probably eased a little'' in the past month, prompting traders to reduce bets on higher interest rates. ``We can see sterling weakening more against the euro,'' said Michael Klawitter, a currency strategist in Frankfurt at Dresdner Kleinwort, the investment bank owned by Allianz SE, Europe's biggest insurer. ``With the retail sales, there's a risk to the downside relative to market expectations.'' The pound may fall to 80 pence per euro ``in the next couple of days,'' he predicted. The GBP is currently trading

The euro will rebound against the dollar as recent losses are excessive, said Tohru Sasaki, chief currency strategist at JPMorgan Chase & Co. The euro's 14-day relative strength index was 25.5 versus the dollar today. A level below 30 signals the currency's losses may reverse. Futures traders raised their bets on a euro fall to the highest amount since May, positions that are often used as a contrary indicator. ``The euro's decline against the dollar was a bit too fast,'' said Tokyo-based Sasaki at the third-largest U.S. bank. ``Investors have also piled up huge short-euro positions against the dollar. The markets are likely to correct those excessive positions.'' A short position is one that bets on a currency falling.

Published on  Thu, Aug 21 2008, 10:47 GMT