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Dollar Rises to One-Year High Against Euro on Growth Outlook

Agnes Lovasz and Ron Harui
Bloomberg [1]
Thursday, Sept 11, 2008

The dollar rose to the highest level in a year against the euro on speculation that economic growth in Europe will be slower than in the U.S., prompting the region’s central bank to lower interest rates.

The U.S. currency climbed for a second day as traders raised bets that the European Central Bank will cut borrowing costs before a government report tomorrow likely to show industrial production in the euro area shrank. New Zealand’s dollar dropped to its lowest level since October 2006 after Alan Bollard, governor of the nation’s central bank, reduced interest rates by more than economists expected.

“We’ve got this dollar strength for several weeks now that is driving currency markets and the fundamental picture is underpinning this,” said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany’s second-biggest lender. “The euro-zone economy is going into recession. This is a growth-differential story.”

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The U.S. currency climbed to $1.3893 per euro, the strongest since Sept. 18, 2007, before trading at $1.3912 as of 10:37 a.m. in London, from $1.3998 yesterday in New York. The Japanese yen advanced to 148.38 per euro, the highest since Nov. 2, 2006, and was last at 148.60, from 150.75. It also gained to 106.89 per dollar from 107.70.

The dollar will rise in coming days to $1.3830 against the euro, a so-called resistance level that may trigger orders to sell the U.S. currency, Karpowitz said.

Full article here [2]