The dollar rose to the highest level against the euro in almost seven months as crude oil fell and traders speculated that the Federal Reserve’s monetary policy will help the US economy outperform Europe and Asia.
The pound fell to a two-year low versus the greenback on evidence a recession in the UK is looming. Australia’s dollar declined to the weakest level in almost a year after the country’s central bank cut interest rates for the first time since 2001 and said economic growth will slow.
“The dollar is in an uptrend,” said Meg Browne, vice-president of foreign-exchange research at Brown Brothers Harriman & Co in New York, in an interview on Bloomberg Radio. “Growth and monetary-policy differentials are beginning to shift in favour of the US dollar. The oil story certainly helps.”
The US currency increased 0.7 per cent to $1.4516 per euro at 11:51 am in New York, from $1.4617 yesterday. It touched $1.4467, the strongest since Feb 8. The dollar rose 0.8 per cent to 108.9 yen, from 108.14. The dollar appreciated as much as 1.3 per cent to $1.7783 per pound, the highest level since April 2006. The euro advanced 0.1 per cent to 158.17 yen, from 157.95.
The Australian dollar fell as much as 2.8 per cent to 82.70 US cents, the lowest level since September 2007, after the Reserve Bank of Australia lowered the overnight cash target rate by a quarter-percentage point to 7 per cent.
Standard Chartered Plc and BNP Paribas SA raised their forecasts for the dollar. London-based Standard predicts the dollar will rise to $1.44 per euro by year-end and $1.36 by the end of the first quarter, compared with previous forecasts of $1.49 and $1.42. BNP, based in Paris, forecasts the dollar will rise to $1.42 versus the euro and $1.71 per the pound by year-end, stronger than $1.45 and $1.88 previously.
A break through $1.4555, an extension of a decline from a “double top” in the euro-dollar, signalled the European currency may fall to $1.4310, a level last reached in December, wrote Kevin Edgeley, an analyst at Goldman Sachs Group Inc in London who uses charts to predict currency movements, in a research note today.
A double top occurs when a currency makes two successive peaks, often indicating a trend’s reversal. The euro reached $1.6019 on April 22, dropped to a two-month low of $1.5285 on May 8, and rose to the record of $1.6038 on July 15.
Dollar’s Rally: The US currency surged 6 per cent versus the euro in August, its biggest monthly gain since the European currency’s debut in 1999. The economies of Europe and Japan shrank in the second quarter, while US gross domestic product expanded at a 3.3 per cent annual pace.
Investors bought four times as many dollars in August compared with the average over the previous 12 months, according to Bank of New York Mellon Corp., a custodian of more than $23 trillion in assets.
“The dollar is cheap,” said Roddy MacPherson, an Edinburgh-based fund manager at Scottish Widows Investment Partnership Ltd, which manages about $165 billion. “The US has been quite preemptive in bringing rates down, and that bodes better for the US relative to many other countries.”
The Fed has cut the target rate for overnight lending between banks from 5.25 per cent in September 2007 to 2 per cent in response to the housing slump and credit market losses.
ECB Rate: The European Central Bank will hold its main refinancing rate at a seven-year high of 4.25 per cent at its meeting Sept 4, according to all but one of the 53 analysts surveyed by Bloomberg News.
The pound depreciated as much as 0.6 per cent to 81.64 pence per euro, the weakest level since the European currency’s debut. UK mortgage approvals dropped to the lowest level in nine years and manufacturing contracted, reports showed yesterday.
The Bank of England will keep the target lending rate unchanged at 5 per cent on Sept 4, according to all of the 61 economists surveyed by Bloomberg News.
“The dollar has been depressed for quite some time as the result of the US crisis,” said Adnan Akant, head of foreign- exchange in New York at money manager Fischer Francis Trees & Watts Inc, with $32 billion in assets. “Now, this is not the only place with economic woes. From valuation and interest-rate perspectives, the dollar is in a good shape.”
Crude oil for October delivery fell today as much as 8.7 per cent to $105.46 a barrel, the lowest level since April. The euro-dollar exchange rate and oil had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.
Akant bought the dollar in March when it traded near $1.59, believing the euro had “peaked.” The trade went against him when oil surged in July to the all-time high of $147.27.
“It was a difficult period,” Akant said. “When oil prices went from $120 to $140, that was the scariest thing. Eventually that turned out to be an overshoot in oil.”
The dollar may rise to $1.30 in six months, he said.
