Tags: Dollar | Falls | Three | Month | Low | Growth | Worries

Dollar Falls to Three-Month Low on Growth Worries

Monday, 02 Aug 2010 02:58 PM

The dollar fell to a three-month low on Monday against a basket of currencies on fears the U.S. recovery is faltering.

Strong European earnings meanwhile pushed sterling to a six-month high against the greenback.

The euro neared $1.32 for the first time since early May, with its rally picking up steam after the currency broke above $1.3125, a key technical level. The Australian dollar hit a three-month peak after data showed Chinese manufacturing expanded for a 17th straight month.

Signs of weaker U.S. growth have weighed on the dollar in recent weeks. Data on Friday showed growth slowed to a 2.4 percent annual rate in the second quarter and Federal Reserve Chairman Ben Bernanke on Monday said the economy is still far from achieving full recovery.

Currency traders paid little attention to U.S. data on Monday showing stronger than expected manufacturing growth.

However, the Chinese data and recent solid reports from Europe have investors hopeful the world economy can grow even if U.S. recovery sputters. That has boosted appetite for higher risk currencies and pushed them through technical levels.

Analysts said the euro's rally accelerated after it broke $1.3125. That marked a three-month high and the 38.2 percent retracement of a decline that began in November and took the euro to $1.1876 in June, its lowest since 2006. It was last up 1 percent at $1.3181.

A close around these levels, analysts said, would be a bullish sign, with $1.3510, the 50 percent retracement of the November-to-June move, a potential target. But traders said barriers around $1.3200, $1.3250 and beyond could make it a slow and difficult climb.

"It's a broad dollar-weakness story right now," said Sebastien Galy, senior strategist at BNP Paribas in New York.

"If we close above key technical levels on the euro, we may be in for a sharp acceleration."

An index of the dollar against six major currencies fell 0.8 percent and was nearing its 200-day moving average, another important technical level that, if breached, could suggest further losses ahead, analysts said.

Sterling hit a six-month high versus the dollar of $1.5897 and hit a four-week high against the euro.

Robust results from HSBC and BNP Paribas helped risk sentiment and boosted European shares.

Some analysts said more than the increase in profitability, some of the European bank earnings report showed that quarterly provisions to sustain losses had been cut in half.

"This helped ease concerns regarding the broader European banking community and has propelled the euro higher," said Dan Cook, a senior market analyst at IG Markets Inc. in Chicago.

Cook added that despite today's rally, the next major area of resistance may not come into play until $1.3270 and $1.3290.

U.S. stocks gained as equities investors ignored the GDP numbers to focus on strong earnings and data that showed the U.S. manufacturing sector slowed only moderately in July.

"What's happening is the rest of the world doesn't look so bad and the U.S., while sluggish, doesn't look dire yet," said Joseph Trevisani, chief analyst at FX Solutions in Saddle River, New Jersey. As long as China doesn't fall off a cliff, the easy currency play is to keep buying risk, particularly the Australian and Canadian dollars."

The dollar also fell against the Australian and Canadian dollars, with the Aussie hitting a three-month peak earlier at $0.9147.

© 2017 Thomson/Reuters. All rights reserved.

 
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The dollar fell to a three-month low on Monday against a basket of currencies on fears the U.S. recovery is faltering. Strong European earnings meanwhile pushed sterling to a six-month high against the greenback. The euro neared $1.32 for the first time since early May,...
Dollar,Falls,Three,Month,Low,Growth,Worries
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2010-58-02
Monday, 02 Aug 2010 02:58 PM
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