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Dollar Rises on Speculation Oil Decline to Bolster U.S. Economy

Anchalee Worrachate and Stanley White
Bloomberg [1]
Monday, Aug 25, 2008

The dollar rose for a second day against the euro and the pound on speculation a drop in oil prices will support economic growth in the world’s largest energy consumer.

The currency also traded near a seven-month high versus the yen following the biggest decline in crude costs in more than three years. Federal Reserve Chairman Ben. S. Bernanke said Aug. 22 the central bank will act should inflation not moderate “in the medium term.” The euro fell against the yen before a survey tomorrow that may show business confidence in Germany deteriorated to the lowest level since 2005.

“The decline in oil prices has contributed to a quasi rebound in the dollar,” said Geoffrey Yu, a currency strategist in London at UBS AG. “Also, what Bernanke said was less dovish than many people had expected. He’s still hawkish on inflation.”

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The dollar climbed to $1.4739 per euro by 9:39 a.m. in London, from $1.4793 in New York on Aug. 22, when crude oil tumbled 5.6 percent, the most since December 2004. UBS initiated a new short euro/dollar position on Friday, Yu said. A euro/dollar short position is a bet that the euro will fall and the dollar will rise.

The U.S. currency traded at 109.96 yen, from 110.07 at the end of last week. It rose to 110.66 yen on Aug. 15, the highest since Jan. 2. The euro declined to 162.09 yen from 162.83.

  • A d v e r t i s e m e n t

Against the pound, the dollar rose to $1.8457 from $1.8527.

Full article here [1]