Dollar hits 6-month high as gold and euro slide

 

Dollar hits 6-month high as gold and euro slide

TOKYO - The dollar struck a six-month high against the euro on Friday, with more investors bailing out of bets favouring the single currency and commodities as evidence mounts of a slowing global economy.

By (Reuters)

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Published: Fri 15 Aug 2008, 12:58 PM

Last updated: Sun 5 Apr 2015, 11:53 AM

Gold tumbled nearly 3 percent to be below $800 and silver plunged 11 percent, prompting more investors to unwind their bets against the dollar and driving the US currency's trade-weighted index up to a six-month high.

Analysts believe the dollar is in the early stages of a broad recovery from record lows hit earlier in the year, but some said it may soon take a breather because the dollar index has posted gains for 11 straight days in its bull run.

‘The dollar is at a medium-term turning point, and current levels will provide a floor for the next 6-12 months,’ said a senior dealer at a Japanese trading firm.

Among the key milestones achieved in the past two weeks, the dollar index snapped a three-year downtrend and broke above its 200-day moving average for the first time in 2-’years.

The euro slumped to a six-month low of $1.4750, before trimming some losses to $1.4781 down 0.2 percent from late US trade.

The dollar was boosted on Thursday by data showing the euro zone economy contracted in the second quarter for the first time ever and US consumer prices accelerated to a 17-year high in July.

The dollar has rallied more than 5 percent against the euro this month as market players have dumped bets they had made on the global economy withstanding the US downturn -- buying currencies like the euro and Australian dollar as well as commodities.

‘We are getting customers coming in to buy the dollar, such as long-term money accounts, who only come into the market once a year,’ said a senior trader at a US investment bank in Hong Kong.

The dollar index which measures the value of the greenback against a basket of six currencies, struck a six-month high of 76.938.

The dollar was up 0.5 percent at 110.24 yen near a seven-month high hit earlier in the week.

The dollar buying momentum has been bolstered by the Bank of England warning this week of economic pain ahead and Japan's economy contracting in the second quarter at the sharpest rate in seven years.

‘Bursting economic bubbles in high-yielding countries and the euro zone will support the dollar for now,’ the senior Japanese trading firm dealer said.

The slide in gold and silver prices provide more signs that financial institutions hit by the credit crisis still face a funding crunch and are being forced to sell assets that had enjoyed a bubble, he said.

Falling gold prices dealt a further blow to the Australian dollar, already hit by the prospect of a rate cut next month.

The price of gold fell as far as $787.10, pulling silver down 11 percent in its wake.

The Aussie fell as low as $0.8625 back near a seven-month trough.

The Aussie was down 0.2 percent at 95.28 yen as the dollar and other currencies trimmed some losses against the yen as market players covered short positions.

The euro also recovered ground against the yen, rising as high as 163.12 yen up a full yen from the day's low.

The yen has jumped against high-yielding currencies such as the Aussie and the New Zealand dollar on growing expectations that the central banks in these countries will lower interest rates in the coming months.

Japanese retail traders have cut big positions in the Aussie and New Zealand dollar, trying to limit losses from the sharp slide in those currencies over the past few weeks, and more such selling could keep limiting the dollar's gains against the yen.

‘The yen remains relatively strong against the crosses, keeping the dollar top-heavy against the yen,’ said Masafumi Yamamoto, chief forex strategist for Japan at Royal Bank of Scotland.


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