Business | Economy
Dollar edges lower in thin pre-holiday trade
The dollar edged lower in thin pre-holiday trade yesterday after data confirming that the US economy contracted in the third quarter stoked concern about a deep and persistent recession.
- Reuters
- Published: 23:42 December 23, 2008
New York: The dollar edged lower in thin pre-holiday trade yesterday after data confirming that the US economy contracted in the third quarter stoked concern about a deep and persistent recession.
Government data show-ed the economy shrank 0.5 per cent between July and September as consumers and businesses cut spending, and the report kept the dollar under broad pressure.
"The past couple of quarters have been really weak and if anything, I'm afraid it may indicate a really bad fourth quarter," said Kurt Karl, chief US economist at Swiss Re in New York. "Some economists are forecasting a 6 per cent drop in this quarter. Our forecast is for minus 4.2 per cent."
Data on sales of existing and new US homes due later yesterday are expected to show more housing market woes while investors are bracing for more bad news about consumer sentiment from the Reuters/University of Michigan survey.
Manufacturers
Analysts said the data, together with razor-thin liquidity, could aggravate market movements, putting even more selling pressure on the US currency.
The euro was up 0.4 per cent at $1.3995. It climbed above $1.47 last week. The euro rose 0.3 per cent to 126.08 yen. The dollar was unchanged at 90.10 yen, not far from a 13-1/2-year low just above 87 hit last week. Against the Swiss franc, the dollar fell 0.8 per cent to 1.0840 francs.
Sterling was 0.2 per cent lower at $1.4812, weighed down by its own data showing the UK economy shrank 0.6 per cent in the third quarter of 2008.
Adding to the dim view of the US economy was news that big US manufacturers were slashing costs, and that ratings agencies dropped their ratings on debt held by US automakers which have just received a lifeline from the US government.
Caterpillar Inc said it would cut white-collar pay by up to 50 per cent and Textron Inc announced 2,200 job cuts worldwide.
Concerns over the pros-pects for US automakers also mounted as ratings agency Standard & Poor's cut its unsecured debt rating on General Motors to 'C' and Moody's lowered ratings on Ford to 'Caa3'.
"We have had a litany of bad news on the US economy over the past 24 hours and this continued negative news will weigh on the dollar," Bank of New York Mellon head of currency research Simon Derrick said.
A worsening economy prompted the Federal Reserve to slash US interest rates to near zero last week, erasing what was left of the dollar's yield appeal.
End of rally: Gold slips
Gold slipped in holiday-thinned trade yesterday, shrugging off a weaker dollar, as investors cashed in year-end profits after a recent rally in prices.
Spot gold was at $843/845 (Dh3,093/$3,101) an ounce at 1459GMT, compared with $847.10 an ounce late in New York on Monday. Bullion touched a two-month high of $881.20 an ounce last week, bringing the total gains to almost 20 per cent in December alone.
"I think there is not much real interest in the market," said Afshin Nabavi, head of trading at MKS Finance. "It tends to slip a little bit on the back of light liquidation."
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