Monday, August 06, 2007

Dollar Falls On Weak U.S. Growth And Risk Aversion, Monday, August 06, 2007 3:08:06 AM

The US currency has been holding steady versus most of the major currencies through the Asian deals on Monday. The dollar started moving sideways after extending Friday`s losses during early Asian trading.

The dollar fell on Friday amid the release of a few key economic data from the U.S. The downward move confirms the down trend the greenback has traced since it reached multi-day highs against most other majors in the last week of July.

The U.S. unemployment rate rose to 4.6% in July compared to the 4.5% expected by analysts. The non-farm payrolls increased 92,000 over the past month, but came in far less than the anticipated figure of 127,000.

Investors now turn toward the FOMC meting scheduled for tomorrow. The committee is not expected to alter the official interest rate from 5.25%, but the accompanying statement is likely to be scrutinized by the markets to glean clues towards any change in the Fed`s future policy stance.

Many expect the FOMC to shift its focus to sub-prime problems in the US housing markets from inflation, and hence, to issue dovish comments. There are also expectations that the Fed will cut interest rates by the end of 2007. The PCE deflator had dropped to 1.9% in July from an upwardly revised 2.0%, according to the personal income and outlays report released by the Bureau of Economic Analysis last week.

The Bank of England and the European Central Bank left the key interest rates unchanged at 5.75% and 4.0% respectively on Friday, but the ECB signaled a rate hike in September. Firmer Euro-zone economy and narrower gap between ECB and FOMC rates are expected to push the US dollar lower in the near future.

Also, the unwinding of carry trades due to risk aversion by investors has lead to the strengthening of low-yielding currencies like the yen and the franc. The recent fall had pushed the dollar to a 27-month low versus the Swiss franc and a new multi-month low versus the Japanese unit.

Against the euro, the dollar extended its Friday`s losses during early Asian trading on Monday and hit as low as 1.3837 by about 6:00 pm ET Sunday. This set a 13-day low for the greenback compared to the 20-day high of 1.3608 hit on 30th July. The pair is now moving sideways between 1.3806 and 1.3817 in comparison with the all-time low of 1.3850 hit by the pair on 24th July.

The dollar saw weakness versus the Japanese yen during early Asian deals on Monday extending its last week losses. The pair hit a new multi-month low of 117.18 by about 5:55 pm ET Sunday. However, edging up from there, the greenback remained sideways versus the yen all through the Japanese deals on Monday.

The US dollar weakened heavily against the Swiss franc on Friday amid the US data releases. The pair declined further in early Asian deals on Monday and hit a 27-month low of 1.1816 by about 6:00 pm ET Sunday. Thereafter, the pair moved range-bound around 1.185, and the next likely long term level of support is seen around 1.148.

Friday`s force pushed the pound-dollar to 2.0458, a one-week low for the US currency. The pair had been on a downtrend after it hit a 20-day high of 2.0180 on 30th July. The greenback, however, edged up in early Asian deals on Monday but lost its momentum shortly. The pair has lately hit 2.0459, compared to the multi-year low of 2.065 hit on 24th July.
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1 Comments:

At 6:34 AM, Blogger Peter Hoffman said...

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