Euro falls to seven-month low versus the dollar due to concerns over the eurozone economy

The U.S. currency rose to its highest against the euro since January on Wednesday on the back of growing expectations the U.S. economy would outperform that of Europe. Earlier in the day, eurozone data implied the European economy was weakening as retail sales in July fell and other reports confirmed the economy shrank in the second quarter, its first quarter-on-quarter decline since the data series began in 1995. The euro extended its losses versus the dollar and touched it lowest level since January 22 at 1.4385, however, cross-related buying lifted price and the pair traded around 1.4497 at NY closing, down 0.1 percent.  
  
A U.S. government report showed U.S. factory orders rose more than expected in July, adding to signs of resilience in the U.S. economy and another drop in oil prices, which tumbled this week after Hurricane Gustav left energy facilities in the Gulf of Mexico mostly unscathed, also benefited the U.S. currency. The ICE Futures U.S. dollar index which tracks its performance against a basket of six major currencies, jumped earlier to an 11-month high of 78.651, before pulling back to trade little changed at 78.088 at New York closing while crude oil prices for October delivery recovered from its intra-day low of $107.22 and last traded down $0.38 per barrel at $109.33.  
  
Sterling tumbled to as low as 1.7667 against the dollar before recovering slightly after data showing an improvement in the UK services sector. The pound last traded down 0.3 percent for the day at 1.7767.  
  
A Federal Reserve report on regional economic conditions had limited impact on the markets. The Fed's Beige Book showed economic activity has been slow across the United States in recent weeks, but there has been some relief from high commodity and energy prices.  
  
Elsewhere, suspected dollar-selling intervention by South Korean authorities lifted the won from a four-year low on Wednesday, but they may not have done enough to stem the slide in Asia's worst-performing currency this year. The won recently traded down 1.5 percent at 1,148.50 versus the U.S. dollar.   
  
On Thursday, the European Central Bank and the Bank of England will issue separate interest rate decisions and both are expected to keep rates on hold. Investors will also focus on ECB president Jean-Claude Trichet’s news conference at 12:30GMT for clues on the ECB's monetary policy. Other economic data releases include Australian trade balance, German factory orders, U.S. ADP employment, jobless claims, labour cost, productivity and ISM manufacturing.

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Published on  Thu, Sep 4 2008, 04:38 GMT