Business | Markets
Dollar's steepest rise in 10 years 'is too far too fast'
The US dollar slipped on Friday with investors betting the currency's steepest monthly rise in over a decade was too far, too fast.
- Reuters
- Published: 23:53 August 29, 2008
New York: The US dollar slipped on Friday with investors betting the currency's steepest monthly rise in over a decade was too far, too fast.
A report showing US personal income tumbled unexpectedly in July, and spending slowed as the effects of government stimulus wore off, and an inflation measure at a 17-year high, had little impact on trading.
The euro was resilient in the face of lower than forecast euro zone inflation and weak sentiment indicators, as hawkish rhetoric from policymakers raised expectations for higher euro zone interest rates.
European Central Bank Governing Council member Klaus Liebscher echoed comments from other policymakers earlier in the week that inflation is too high.
Still, as August comes to an end, the greenback is up more than five per cent against a basket of currencies, heading for its biggest monthly gain since January 1997.
Uncertainty about the US economy was much alleviated this week by reports showing stronger-than-expected US growth in the second quarter and stronger July orders for durable goods.
"Thursday's revision to second quarter GDP continued the recent trend of firming data out of the US, though markets are still sceptical over the sustainability of such numbers," said UBS in a research note to clients.
Early in New York, the dollar index was down 0.2 per cent on the day at 76.981. The euro was up 0.2 per centat $1.4727, but around 13 cents off its all time high set in mid-July.
The dollar was down 0.8 per cent against the yen at 108.62 yen.
"The conclusion from this report I think is that the US economy is nearing a bottom," said Greg Salvaggio, senior vice-president of capital markets, Tempus Consulting in Washington of yesterday's inflation report. "But the reason we didn't have a dollar reaction is that there aren't that many people on board because of the long holiday weekend."
Investors are expected to try to square positions by selling into any dollar strength before the end of the month and before next week's August US employment report and central bank policy decisions in the euro zone and UK.
While the focus now shifts to the latest snapshot of regional US business activity due later in the session, geopolitical pressures on the dollar remain a concern with a report in Britain's Daily Telegraph that Russia may restrict oil shipments in the coming days in response to the European Union's threat of sanctions over its military action in Georgia.
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