Dollar resumes march to strike its highest 2008 level

New York: The US dollar resumed its march upwards on Tuesday striking its highest 2008 level against a basket of currencies, boosted by soaring US producer prices and persistent weakness in commodities.

The greenback renewed its surge, reversing direction after Monday's retreat, which was its first fall in 11 trading days.

July's surge in the producer price index heightened expectations the Federal Reserve will not cut benchmark interest rates this years, currently at 2 per cent. That should enhance the dollar's appeal to global investors, since markets are increasingly pricing in forecasts for rate cuts in European economies.

"The core (PPI) reading jumping half a per cent above expectations is pretty startling. It certainly highlights the inflationary pressures," said Brian Dolan, chief currency strategist at Forex.com at Bedminster, New Jersey.

Data yesterday showed US producer prices rose 1.2 per cent in July, much higher than market forecasts for a 0.6 per cent increase. The so-called core producer prices, which exclude food and energy, jumped 0.7 per cent in July.

"[We're] going to see US rates and Treasury yields move higher and this is going to lend the dollar a little bit more interest rate support," he added.

The euro fell to $1.4653 after the PPI report, after earlier hitting a six-month low of $1.4631, according to Reuters data. It last traded at $1.4671, down 0.1 per cent.

Index

On the ICE Futures Exchange, the dollar index - which measures its value against a basket of six currencies - rose 0.1 per cent to 77.168 having earlier hit a high for the year at 77.413.

A steep fall in US housing starts, also reported yesterday, failed to capture the market's attention as the data has been distorted by a surge in June starts and permits, analysts said.

However, against the yen, the dollar retreated 0.3 per cent to 109.73 yen, dragged lower by the euro's slide against the Japanese currency to 160.87 yen, a three-month low.

Crude nears $112

Oil prices fell to around $112 yesterday after a tropical storm in the Gulf of Mexico avoided oil and gas installations.

US crude was 54 cents lower at $112.33 a barrel by 1455 GMT. London Brent crude fall 86 cents to $111.08. Oil fell for the fourth day as Tropical Storm Fay swept over Florida.

As the storm concern faded, the market focus was likely to shift to US oil inventory data from the Energy Information Administration and the expiry of front month US crude, or West Texas Intermediate, today.