Wednesday, August 6, 2008
U.S. dollar hits 6-week high vs euro ahead of Fed interest rate decision
| LONDON - The dollar rose to a six-week high against the euro, helped by falls in oil prices and as market players awaited Tuesday's Federal Reserve interest rate decision. The Fed is fully expected to leave interest rates on hold at 2.00 percent as a slowing economy prevents the central bank from raising interest rates in order to tackle soaring inflationary pressures. Hopes are growing, however, that the rate-setting Federal Open Market Committee will release a hawkish statement to accompany its decision. "The dollar is currently supported by expectations that the statement could sound more hawkish," said Commerzbank analyst Ulrich Leuchtmann. The statement is expected to reiterate that the downside risks to growth have diminished, particularly following some better-than-expected U.S. data recently. Meanwhile, the dollar is also gaining from sharp falls in oil prices, which are now trading at around $119 per barrel, on hopes that this will help prop up the U.S. economy. The oil price falls have also benefited the yen -- as Japan must import 100 percent of its oil -- and weighed on commodity currencies, with the Australian dollar slumping to a four-month low against its U.S. counterpart of $0.9169. Meanwhile, the euro also suffered as the final reading of the euro zone service sector PMI confirmed activity contracted for the second month running during July. The RBS/Markit Eurozone Purchasing Managers Index for services companies fell to 48.3 from 49.1 June, well below the 50.0 mark that separates growth from contraction and adding to the mounting evidence that the euro zone economy is slowing sharply. "The sharper contraction in service sector activity in July adds to the mounting evidence that the euro zone economic downturn is deepening," said Howard Archer at Global Insight. The news was compounded by data showing a sharp fall in euro zone retail sales during June. At 1130 GMT, the euro was trading at $1.5475, down from $1.5501 at 0843 GMT. Elsewhere, the pound also fell to a six-week low against the dollar after figures showing a bigger than expected fall in industrial and manufacturing production during June raised the prospect of a downward revision to UK second quarter GDP figures. "The ongoing contraction in the (manufacturing) sector is looking more ominous given the deteriorating situation in the euro zone, the UK's major export market," said Daragh Maher at Calyon, adding that it suggests the sector will "remain in the doldrums for some time to come". The news was somewhat offset, however, by a stronger-than-expected service sector PMI survey, which unexpectedly rose to 47.4 in July from a seven-year low of 47.1 in June. At 1130 GMT, the pound was trading at $1.9530 against the dollar, down from $1.9551 at 0840 GMT, while the euro was trading at 0.7921 pounds against 0.7924 pounds at 0840 GMT. Labels: ADVFN NewsDesk |
posted by Matbank at 12:37 AM
