Thomson Financial News
FOREX-Dlr comeback fed by sinking pound on GDP surprise
08.22.08, 8:35 AM ET

LONDON, Aug 22 (Reuters) - The dollar fought back from the

previous day's sharp correction versus a basket of major

currencies on Friday, helped by easing oil and a tumbling pound

after growth data increased chances of recession in the UK.

Oil lost traction after surging nearly 5 percent on

Thursday. It was last at $120.53 a barrel, down 0.65 percent on

the day , taking the heat out of upside inflation risks

and aiding the dollar.

Sterling fell more than one percent versus the dollar after

second quarter gross domestic product (GDP) showed the UK

economy ground to a halt in the three months to June, down from

a preliminary estimate of 0.2 percent growth and undershooting

analysts' forecasts for a revision to 0.1 percent growth.

That was the weakest performance since the recession of the

early 1990s.

The poor UK growth numbers add to an overall bleak picture

of a slowing European economy after recent data showing

contraction in euro zone GDP, increasing the possibility of

European Central Bank and Bank of England monetary easing.

'We had a bit of a correction of yesterday's dollar decline

before the UK GDP data. The UK figures, as well as hitting the

pound, also pressured the euro as that was a sign that growth in

Europe is slowing down,' said Marcus Hettinger, global FX

strategist at Credit Suisse.

By 1102 GMT, the euro had fallen half a percent to

$1.4828, edging towards a six-month low hit earlier this week at

$1.4628 according to Reuters data.

Sterling slid 1.1 percent to $1.8589 , while

trade-weighted sterling hit its lowest since late 1996 <=GBP>.

The pound's losses helped fuel a 0.6 percent rise in the

dollar versus a basket of major trading currencies <.DXY> to

76.479, moving it closer to 77.413 hit on Tuesday, its strongest

since late December.

The dollar also rose 0.8 percent to 109.26 yen, recovering

from a slide to 108.12 yen on Thursday and inching back towards

an eight-month high of 110.66 yen touched a week ago.

FURTHER DOLLAR GAINS FAVOURED

Markets awaited a speech by U.S. Federal Reserve Chairman Ben

Bernanke, who will talk about financial stability at an annual

symposium in Jackson Hole, Wyoming, later in the day, for more

clues into the U.S. central bank's view on the economy and its

interest rate outlook.

Persistent doubts about the health of Fannie Mae (nyse: FNM - news - people ) ,

Freddie Mac (nyse: FRE - news - people ) and investment bank Lehman Brothers (nyse: LEH - news - people )

have reminded investors about the housing-related troubles still

plaguing the United States. [ID:nLL720462]

But those financial sector fears were not having the same

repercussions in financial markets as they did earlier in the

year, traders said.

The dollar has soared this month as investors dumped

positions they had made betting the global economy would

withstand the U.S. downturn and the credit crisis by selling the

euro, the Australian dollar and commodities.

Clear signs that the euro zone and other major economies are

losing steam have prompted investors to expect some central

banks will start to cut interest rates to shore up growth, just

as the Federal Reserve is expected to keep rates steady for a

while.

Analysts said the dollar had been overdue for a reversal of

its sharp gains, but it was still on the road to a medium-term

recovery after a seven-year slide to record lows.

'We're still upbeat on the dollar, and we think that the big

move we saw last week is very symptomatic of the currency being

undervalued in the bigger picture,' said Paul Mackel, director

of currency strategy at HSBC (nyse: HBC - news - people ) Markets.

(Additional reporting by Naomi Tajitsu in London)

(Reporting by Veronica Brown; Editing by Victoria Main)

Currency bid prices at 1101 GMT. All data taken from Reuters with percent change calculated from the daily U.S. close at 2130 GMT. Last US Close % Chg YTD % 2007 21 Aug. Close ----------------------------------------- Euro/dlr 1.4843 1.4906 -0.42 +1.74 1.4589 Dlr/yen 109.26 108.35 +0.84 -1.86 111.33 Euro/yen 162.13 161.62 +0.32 -0.25 162.53 Dlr/swiss 1.0915 1.0859 +0.52 -3.71 1.1335 Stg/dlr 1.8590 1.8792 -1.07 -6.33 1.9847 Dlr/cad 1.0453 1.0432 +0.20 +4.91 0.9964 Aus/dlr 0.8734 0.8805 -0.81 -0.26 0.8757 NZD/Dlr 0.7132 0.7213 -1.12 -6.97 0.7666 Euro/swiss 1.6202 1.6185 +0.11 -2.04 1.6539 Euro/stg 0.7983 0.7932 +0.64 +8.62 0.7349 Euro/sek 9.3674 9.3533 +0.15 -0.67 9.4304 Dlr/Nok 5.3458 5.3164 +0.55 -1.64 5.4347 Latest forex developments All forex news ... [FRX] Debt...[DBT] Indicators...[ECI] Currency reports.. [USD/] [DLR/BLOC] [GBP/] [AUD/] [NZD/] [CAD/] All spots Tokyo spots Europe spots Volatilities Tokyo Forex market info from BOJ World central bank news [CEN] Economic Forecasts... Official rates...[INT/RATE] Forex Diary.......[MI/DIARY] Top events........[M/DIARY] Diaries...........[DIARY] Diaries Index........[IND/DIARY] Press Digests....[PRESS] Polls on G7 economies..[SURVEY/]

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