Euro Falls to Six-Month Low as German Business Sentiment Drops
By Ye Xie and Gavin Finch
Aug. 26 (Bloomberg) -- The euro fell to a six-month low against the dollar after a report showed German business confidence dropped in August more than economists forecast.
Sterling declined to the weakest level versus the dollar in two years as an industry report showed mortgage approvals held last month near a decade low. Economic weakness in Europe helped push an index measuring the dollar against the currencies of six U.S. trading partners to the highest level since December.
``The euro is hit hard today,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``The market is coming around to the view that the extremely high level in the euro-dollar is not justified.''
The 15-nation euro dropped 0.8 percent to $1.4643 at 10:08 a.m. in New York, from $1.4754 yesterday. It touched $1.4571, the lowest level since Feb. 14. The currency fell 0.5 percent to 160.46 yen, from 161.26 yesterday, after reaching 159.99, the lowest level since May 12. The dollar increased 0.3 percent to 109.61 yen, from 109.30.
The greenback has risen against all of the other major currencies this month on evidence the economic slowdown that began in the U.S. is spreading to the rest of the world. The U.S. currency's gains range from a 10.4 percent advance against the Australian dollar to a 1.4 percent increase versus the Mexican peso.
The ICE futures exchange's Dollar Index, which compares the greenback against six other major currencies, rose to 77.619, its highest level since Dec. 26.
Weaker Pound
The pound dropped 0.8 percent to $1.8385 after touching $1.8331, the lowest level since July 2006. Banks granted 22,448 loans for house purchases in July, down 65 percent from a year earlier, the British Bankers' Association said. The reading is up from 22,369 in June, the lowest since 1996.
The euro has lost more than 8 percent versus the dollar since touching an all-time high of $1.6038 on July 15. It decreased as the European economy contracted in the second quarter and crude oil dropped more than 20 percent from a record $147.27 a barrel set last month.
The Ifo institute's German business confidence index declined this month to 94.8, the lowest level in three years, from 97.5 in July. The median forecast of 35 economists surveyed by Bloomberg News was for a decrease to 97.2.
``The combination of incremental weakness in the European economy and moderating oil prices should keep the pressure on the euro,'' said Manuel Oliveri, a currency strategist in Zurich at UBS AG, the world's second-biggest currency trader.
Crude Oil
Europe's currency pared losses today after crude oil for October deliver rose 2 percent to $117.47 a barrel. The euro- dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.
The euro dropped for a second day versus the yen and declined 0.4 percent to 2.3987 Brazilian reais as traders added to bets that the European Central Bank will cut interest rates next year. The implied yield on Euribor futures contract expiring in September 2009 fell 9 basis points, or 0.09 percentage point, to 4.29 percent. The yield averaged 18 basis points above the ECB's benchmark, currently 4.25 percent, from 1999 to August 2007.
Housing Report
The dollar rose against the yen as a private report showed consumer confidence increased in August more than forecast on cheaper gasoline. The New York-based Conference Board's confidence index rose to 56.9 from 51.9 in July.
The Commerce Department reported that U.S. new home sales rose to an annual rate of 515,000 in July from a revised 503,000 in the previous month. The median forecast of 76 economists surveyed by Bloomberg News was for a decrease to 525,000 from a previously reported 530,000.
U.S. economic growth may stall in the second half of 2008 as financial strains continue to tighten credit, said Dallas Federal Reserve Bank President Richard Fisher in an Aug. 25 interview with Dow Jones.
``Growth will taper down,'' Fisher said. ``I could see us approaching, certainly broaching zero.'' |
