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Euro at eight-year low against dollar
The euro fell the most in almost eight years against the dollar as traders pared bets the European Central Bank will raise interest rates as the economy slows.
- Bloomberg
- Published: 00:01 August 9, 2008
New York: The euro fell the most in almost eight years against the dollar as traders pared bets the European Central Bank will raise interest rates as the economy slows.
The euro is poised for its biggest weekly loss since January 2005 after ECB President Jean-Claude Trichet on Thursday said economic growth will be "particularly weak" through the third quarter.
An index that tracks the dollar against the currencies of six US trading partners touched the highest since February. Crude oil fell to a three-month low.
"This is the beginning of a new chapter for the dollar as Trichet and other central banks are paying more attention to the downside risk to growth," said Dustin Reid, a senior currency strategist at ABN Amro Bank in Chicago.
"The decline of oil prices is a significant driver behind this dollar rally because it enables other central banks to turn their eyes away from inflation and focus on growth."
The euro declined 1.95 per cent to $1.5032 at 10:23 a.m. in New York and reached $1.5005, the lowest level since February 27, from $1.5325 yesterday. It dropped as much as 2.08 per cent, the biggest one-day drop since September 6, 2000.
Against the yen, the European currency traded at 165.84, from 167.70. The dollar rose 0.5 per cent to 109.97 yen after touching 110.08, the strongest since January 10.
The euro's decline below $1.53 and the break of the 200-day moving average at $1.5226 "marks a significant change in sentiment for the dollar," pointing to a further decline to $1.46, Kevin Edgeley, a London-based technical analyst at Goldman Sachs Group Inc., wrote in a report today.
The euro has declined 3.1 per cent against the dollar in its fourth weekly decline, the worst losing streak since May 2007. Against the yen, the US currency has advanced 2.1 per cent, heading for its biggest weekly gain in almost two months.
Technical-driven move
"The most important aspect of the dramatic collapse in the euro dollar is the absence of confirmation from other markets," said David Woo, global head of currency strategy at Barclays Capital.
"None of the typical drivers of the euro-dollar in the past couple of years could have accounted for the magnitude of this move, which leads one to conclude that this is a technical driven move."
The South African rand led losses among the most-traded currencies as the prices of gold and platinum dropped, reducing prospects for export earnings from the country's biggest exports. The greenback rose to a six-month high against the Australian dollar, and advanced to the highest since September against the New Zealand dollar on speculation the central banks will cut borrowing costs.
The Russian rouble fell by the most in two-and-half years against a dollar-euro basket used by the government after Georgia's Interior Ministry said four Russian fighter-jets entered Georgian airspace and bombed the towns of Gori and Kareli, boosting the risk of war. The rouble dropped as much as 0.8 per cent against the basket.
Pound falls
The pound fell below $1.93 for the first time since March 2007 as the Bank of England kept its main interest rate steady at 5 per cent yesterday after inflation accelerated and the economy teetered on the brink of a recession. It has dropped 2.7 per cent this week to $1.9210, its biggest weekly drop in three years.
The Dollar Index on the ICE futures exchange reached 75.713 today, the highest since February 21.
Trichet said on Thursday he has "no bias" or "pre- commitment" toward future rate movements after the central bank left the main refinancing rate at 4.25 per cent. He told reporters in Frankfurt that while inflation remains a threat, risks to economic growth are "materialising."
European retail sales dropped by the most in at least 13 years in June, the European Union said on Aug. 5. Consumer confidence slid in July by the most since the Sept. 11, 2001, terrorist attacks, the European Commission said July 30.
Traders pared bets the ECB will lift rates a second time this year after increasing its main rate by a quarter-point last month.
Gold at three-month low
London: Gold slid more than two per cent on Friday to a three-month low as the dollar headed for its biggest weekly rise in three-and-half years, and looked set to fall further as investors liquidated commodity holdings.
Gold was at $850.90/851.90 an ounce at 1414 GMT, down from $871.05/$872.45 late in New York. Earlier the metal hit an session low of $850.50, its weakest level since May 2.
The precious metal is down nearly $60 an ounce, or six per cent, from its level in New York late last Friday.
"The main driver at this point is the strength of the dollar, without a doubt," said Tom Hartmann, a trader at Altavest Worldwide Trading.
Gold in euro terms was only slightly softer, trading at 566.90 euros against 568.45 in late New York trade on Thursday.
"Clearly there is some demand from a portfolio perspective for gold in euro terms, many investors liking the portfolio protection afforded by the yellow metal in an inflationary environment," said JP Morgan analyst Michael Jansen in a note.
Gold is also being pressured by a sell-off of commodities almost across the board, with copper, coffee, sugar and oil all declining.
Gold typically moves in the opposite direction to crude, as it is often bought as a hedge against oil-led inflation.
Silver declined in gold's wake, pressured by the firmer dollar and faltering investor confidence in commodities.
"Silver [is] primarily taking its cue from the stronger dollar and weaker gold prices," said Barclays Capital.
Spot silver fell to $15.41/$15.46 an ounce from $16.14/$16.23. Earlier it touched a seven-month low of $15.34 an ounce.
Among other precious metals, platinum and palladium also tracked gold lower, pressured by the firmer dollar.
- Reuters
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