Dollar dips vs euro, pulls away from six-month peak
By Masayuki Kitano
Reuters
First Posted 11:17:00 08/27/2008
Filed Under: Economy, Business & Finance,Foreign Exchange Markets
TOKYO, Japan -- The dollar dipped against the euro on Wednesday, taking a breather after hitting a six-month high the previous day on data showing a deterioration in German business morale. The dollar fell broadly, slipping 0.3 percent against a trade-weighted basket of major currencies as investors scaled back positions.
"Fund operators are trimming their long dollar positions. The moves are not being caused by any particular factors," said Shuichi Kanehira, a senior forex trader at Mizuho Corporate Bank.
The euro rose around 0.3 percent from late US trading on Tuesday to $1.4698 pulling away from a six-month low of $1.4570 struck on trading platform EBS on Tuesday.
Sterling edged up 0.3 percent to $1.8433 having trimmed some of its losses after slumping to a two-year trough of $1.8330 on Tuesday.
The dollar fell 0.3 percent against the yen to 109.29 yen dragged down by selling by Japanese exporters. Such commercial flows tend to pick up towards the month-end.
The euro had slid on Tuesday after data showed German business morale had fallen to a three-year low. Traders cited as a factor behind its rise buying by trend-following Commodity Trading Advisers or CTA funds, also known as managed futures firms.
The data was the latest sign that weakness in the US economy had spilled over into other major economies, and underscored market expectations for the European Central Bank to eventually lower interest rates.
DOLLAR SEEN SUPPORTED
The euro, sterling and high-yielding currencies such as the Australian dollar have slid sharply since late July due to mounting signs that economic weakness has spread beyond the United States.
Given this backdrop, the dollar was likely to remain supported by a process of elimination, traders said, despite lingering worries about US financial institutions' losses from the turmoil in credit markets.
"There are various negative factors against currencies other than the dollar, and we are not in a risk-taking environment," said Kanehira at Mizuho Corporate Bank.
Investors are bracing for central banks in the euro zone, Britain, Australia and New Zealand to lower interest rates, either this year or sometime next year.
By contrast, the Federal Reserve is seen likely to raise US interest rates by around 50 basis points from the current 2.0 percent by next August.
"Whether it's cable, the euro, Aussie or kiwi, there is little sign yet that they have bottomed out," said a trader for a major Japanese trading house.
Higher-yielding currencies likely have more room to fall, especially against the yen, he said.
The Australian dollar rose 0.5 percent to $0.8579 having edged up from an 11-month low of $0.8493 hit on Tuesday.
Interest rate futures are pricing in a 25-basis point rate cut by the Reserve Bank of Australia early next month to cushion the economy.
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