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Dollar Rises to Six-Month High on Bets Global Economy Slowing

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Ye Xie and Gavin Finch
BLOOMBERG
Thursday, August 26, 2008

Aug. 26 (Bloomberg) — The dollar rose to a six-month high against the euro on speculation the greenback will be the main beneficiary of a global economic slowdown as German business confidence dropped in August more than forecast.

The U.S. currency was headed for the biggest monthly gain since the 15-nation euro debuted in 1999, increasing to an 11- month high versus the Australian dollar and gaining versus the New Zealand dollar and the Swedish krona. British sterling declined to the weakest level versus the dollar in two years as mortgage approvals held last month near a decade low.

“The dollar is leaning heavily on bad news elsewhere,” 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.”

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Against the euro, the dollar increased 0.9 percent to $1.4627 at 1:46 p.m. in New York, from $1.4754 yesterday. It touched $1.4571, the strongest level since Feb. 14. The dollar rose 0.4 percent to 109.79 yen, from 109.30. The euro fell 0.4 percent to 160.60 yen, from 161.26 yesterday, after reaching 159.99, the lowest level since May 12.

The greenback has risen against all of the other major currencies this month, with gains ranging from a 10.1 percent advance against the Australian dollar to a 1.4 percent increase versus the Mexican peso. The dollar has climbed 6.4 percent against the euro, the biggest monthly gain since the European currency began trading.

  • A d v e r t i s e m e n t

Dollar’s Index

The ICE futures exchange’s Dollar Index, which compares the greenback against the currencies of six U.S. trading partners, rose to 77.619 today, its highest level since Dec. 26.

Deutsche Bank AG, the world’s largest currency trader, predicts the dollar will appreciate to $1.45 by year-end, a call it has maintained since April.

UBS AG, the second largest, raised its forecast this month, predicting the greenback will trade at $1.47 in three months, compared with a previous forecast of $1.53. Lehman Brothers Holdings Inc. expects the currency will rise to $1.43 per euro by year-end and $1.40 by the end of the first quarter, compared with previous forecasts of $1.50 and $1.48.

Speculation that central banks will lower interest rates to support growth pushed most of the major currencies down against the dollar. The Australian dollar fell 1 percent to 85.45 U.S. cents after it reached 84.94, the weakest level since September. The New Zealand dollar lost 1.1 percent to 69.57 U.S. cents, while Sweden’s krona decreased 1 percent to 6.4110 versus the U.S. dollar.

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This article was posted: Tuesday, August 26, 2008 at 12:06 pm





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