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1 Bulls throw weight behind dollar on Mon Aug 11, 2008 10:03 pm

rosco 357

Bulls throw weight behind dollar
By Peter Garnham

Published: August 11 2008 11:39 | Last updated: August 11 2008 22:59

The dollar hit a six-month high against the euro amid a growing realisation that the US economy was not deteriorating as quickly as others across the globe.

The dollar rose to a peak of $1.4881 against the euro, its strongest level since February, and hit a 21-month high of $1.9070 against the pound.

David Bloom, of HSBC, said the tide had turned in favour of the dollar.

He said that, while US economic data had been surprising on the upside recently, the deterioration in other economies had been dramatic.

“This does not necessarily mean that the US economy is in good shape, just that relative to expectations the economy is improving.”

He said that, in the US, the policy response to the global slowdown had already occurred, with the Federal Reserve slashing interest rates and the government providing a fiscal stimulus.

“The market fears that monetary policy is now set to be loosened outside the US.”

The dollar put in its best performance since the 1999 inception of the euro last week after Jean-Claude Trichet, president of the European Central Bank, warned of a slowdown in eurozone growth in the coming months.

This destroyed expectations of further rate rises in the eurozone, sending the dollar sharply higher against the single currency.

This provided the catalyst for the dollar to break higher from its recent ranges against a raft of currencies, sending it up across the board.

The dollar’s rally ran out of steam during European trading on Monday, however.

Analysts said rising oil prices, sparked by the conflict in Georgia, gave short-term investors an excuse to take profit after the dollar’s sharp rally.

Late in New York, the dollar was up 0.2 per cent at $1.4905 against the euro, had risen 0.2 per cent to $1.9100 against the pound and rallied 0.1 per cent to Y110.13 against the yen.

Meanwhile, the dollar gained 0.2 per cent to SFr1.0875 against the Swiss franc and rose 0.4 per cent to $0.8815 against the Australian dollar.

Analysts said they expected the dollar to extend its recent strength as investors reassessed their longer-term view.

Maurice Pomery, of IdeaGlobal, said there had been a fundamental shift in attitude towards the European economy, and both interest rate expectations and the potential for a global slowdown were positive for the dollar.

Longer-term “real money” FX investors – such as pension funds and asset managers – would have some decisions to make very soon over asset allocation following the dollar’s sharp rise that could prompt further gains in the currency.

“We remain bullish on the dollar,” Mr Pomery said.

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