Dollar falls on US economic worries

Published January 9, 2008

LONDON, Jan 8: The dollar remained under pressure on Tuesday after the latest US housing data and as players looked ahead to key eurozone and British interest rate decisions later this week, dealers said.

They said the US housing data confirmed the weakness in the sector and so added to the negative tone on the dollar but the news was not all bad after revisions to earlier figures.

At the same time, with the European economy still showing signs of underlying strength, especially in Germany where industrial orders were much better-than-expected in November, eurozone interest rates will remain higher than US lending costs.

That makes for a weaker bias in the dollar until the US economy begins to pick up again, dealers said.

The European Central Bank meets on Thursday when it is widely expected to leave interest rates on hold while some analysts think the Bank of England could cut the same day, although opinion remain divided on that outcome.

The US Federal Reserve is meanwhile expected to cut rates again at its meeting at the end of the month, with some seeing a reduction of as much as 50 basis points as the central bank tries to keep the economy growing.

In late European trade on Tuesday, the euro was at $1.4721, up from $1.4720 in early deals and $1.4691 in New York late on Monday.

The dollar edged up to 109.24 yen from 109.13 yen late Monday.

In the commodity markets, gold soared to a fresh record high of $876 per ounce on Tuesday owing to rebounding oil prices, a weak dollar and geopolitical tensions, dealers said.

A falling dollar makes gold cheaper for buyers using stronger currencies.

Dealers said the dollar got some support from the latest US housing snapshot after initial concerns over the headline data faded in light of largely positive revisions to earlier numbers.

In European trade on Tuesday, the euro changed hands at $1.4721 against $1.4691 late Monday, at 160.79 yen (160.37), 0.7460 pounds (0.7456) and 1.6385 Swiss francs (1.6405).

The dollar stood at 109.24 yen (109.13) and 1.1136 Swiss francs (1.1165).

The pound was at $1.9731 ($1.9699).—AFP

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