Friday August 15, 09:49 AM
Forex - Dollar rally continues on fall in gold, improving U.S. economic outlook
LONDON (Thomson Financial) - The dollar was just off a six month high against the euro, supported by falling gold prices and the belief that the U.S. economy's prospects are improving relative to the rest of the world.
Gold has tumbled nearly 3 percent to be below $800 and silver plunged 11 percent, prompting more investors to unwind their bets against the dollar and driving the U.S. currency's trade-weighted index up to a six-month high.
Analysts believe the dollar is being supported by fears for the euro zone and Asian economies, despite the fact that U.S. economic data continues to come in on the weak side.
'The dollar's apparent failure to respond to weak U.S. economic data reinforces the market's impression that the dollar continues to be driven by improving relative U.S. growth differentials,' said Lee Hardman, currency strategist at Bank of Tokyo-Mitsubishi (Munich: 857124 - news) .
Later today the release of U.S. Treasury TICS inflow data will be carefully scrutinised to see whether investors' improving confidence in the U.S. currency has been reflected in the number of dollar assets being bought.
At 0825 GMT the euro was trading at $1.4707, just off a low of $1.4701 - the lowest level seen since February this year.
Elsewhere the pound was also under pressure against the dollar, falling to a fresh two-year low as expectations the next move in UK interest rates will be down continued to mount. The Bank (TBHS - news) of England's Inflation Report on Wednesday had a more dovish tone than many investors were expecting, indicating that inflation will eventually fall below the Bank's 2.0 percent target if borrowing costs stay at their current level of 5.0 percent.
'The pound will stay under the pressure as rate cut speculation is likely to
build in the coming weeks - a rate cut as early as November (Frankfurt: A0S9N7 - news) is now possible,' said analysts at BNP Paribas (Paris: FR0000131104 - news) .
At 0825 GMT the pound was trading at $1.8531, just off a low hit earlier of $1.8519, its lowest level since August 2006. Meanwhile the euro was trading at 0.7940 pence, up from 0.7922 pence at 0620 GMT.
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