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Dollar hits two-week high against euro

LONDON - The dollar rallied on Wednesday to a two-week high against the strong euro after poor French economic data, analysts said, as the market awaited the release of keenly-awaited US housing figures.

In early European trade, the euro fell to 1.3735 dollars, from 1.3821 dollars late on Tuesday in New York.

The dollar firmed to 120.24 yen, from 120.23 yen late Tuesday.

The European single currency, which on Tuesday hit a record high of 1.3852 dollars, struggled Wednesday after publication of a softer-than expected French business sentiment survey, some traders said.

An indicator of French business confidence was 110 in July, unchanged from June, according to a monthly survey of industrialists carried out by the statistics office Insee.

While the headline figure was in line with expectations, the general output expectations measure fell to plus 17 from plus 24. Economists had expected a smaller fall to plus 21.

Meanwhile traders digested a stern warning by European Central Bank chief Jean-Claude Trichet, issued to eurozone governments, against trying to influence its interest rate decisions.

“Of course there is the temptation in certain countries to make scapegoats of the EU and the ECB,” Trichet told German weekly newspaper Die Zeit amid complaints by France about the bank’s interest rate policy and its impact on the euro. “That is not fair.”

Media were given access to the interview ahead of its formal publication on Thursday.

The French government has argued that the ECB’s decision to raise its key rates eight times over the past 18 months has driven the euro to new high points against the dollar and warned against further monetary policy tightening.

The market was meanwhile gearing up for publication Wednesday of existing US home sales for June.

The dollar has in recent weeks been hit by nervousness about the US sub-prime mortgage loan sector which offers loans to people with risky credit histories.

Sub-prime lenders in the US have suffered widespread mortgage defaults in the slumping housing market.

“A negative home sales report may reinforce concerns over subprime defaults as a soft sales market makes it more difficult for over-stretched homeowners to sell homes they can no longer afford,” Calyon analyst Michael Carey said.

The euro was changing hands at 1.3735 dollars, against 1.3821 dollars late on Tuesday, 165.24 yen (166.21), 0.6698 pounds (0.6700) and 1.6654 Swiss francs (1.6626).

The dollar stood at 120.24 yen (120.23) and 1.2119 Swiss francs (1.2026).

The pound was being traded at 2.0525 dollars (2.0624).

On the London Bullion Market, the price of gold dropped to 677.30 dollars per ounce from 684.30 dollars late on Tuesday.