Dollar retreats from highs with Weber lifting euro

NEW YORK - The dollar slipped on Wednesday as investors bet the U.S. currency's recent jump to 2008 highs against a basket of currencies was too far, too fast given hawkish rhetoric from a European Central Bank policy-maker.

By (Reuters)

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Published: Wed 27 Aug 2008, 8:15 PM

Last updated: Sun 5 Apr 2015, 12:00 PM

The euro got an added boost when ECB Executive Board member Axel Weber said any talk about lower interest rates in the euro zone is premature.

A government report showing an unexpected rise in new orders for long-lasting U.S. manufactured goods in July and an upwardly revised number for June helped the dollar pare losses though a persistent concern about the U.S. economy and banking system remained on investors' minds.

The dollar is "still weaker on the session, but I would expect this (data) would foster a little bit more U.S. dollar strength as the session wears on since we don't really have any other data to look forward to today," said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto.

In early New York trade, the euro was up 0.6 percent on the day at $1.4732.

The dollar index, a measure of the greenback's value against six major currencies, fell 0.4 percent on the day to 76.937, having hit a 2008 high on Tuesday at 77.619.

Sterling rose 0.3 percent to $1.8450, after slumping to a two-year trough on Tuesday. The dollar fell 0.1 percent against the yen to 109.47 yen.

"There's a suggestion that the dollar's recovery has come too far, too fast," said Chris Turner, head of FX strategy at ING.

"People are a bit in shock at the speed of the move in the dollar and short-term yield spreads don't justify the extent of the euro's fall."


Weber's comments surprised investors. A batch of weak euro zone economic data had fuelled expectations that the European Central Bank's next move would be to cut rates, contributing to an 8 percent fall in the single currency against the dollar since its peak in July.

In contrast, economists expect the U.S. Federal Reserve to tighten policy but minutes of the bank's last rate-setting meeting also hinted that weak financial conditions and sluggish growth could prevent such a move.

The dollar is expected to be broadly supported by a deteriorating global economy even as the Fed seems likely to keep rates on hold in the coming months.

Other central banks in the euro zone, Britain, Australia and New Zealand are expected to lower rates at some stage in order to shield their economies from the threat of recession.

Analysts think the Fed is likely to raise U.S. interest rates by around 50 basis points from the current 2.0 percent by next August.

Still, the fragile U.S. banking system remains a concern for investors.

The Federal Deposit Insurance Corp said on Tuesday that more banks than at any time since 2003 might go to the wall, and the Wall Street Journal reported that the FDIC might have to tap Treasury funds to see it through the expected wave of bank failures.

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