Dollar soars to 5-mth high vs euro as turnaround eyed

Reuters
Friday, Aug 8, 2008

The dollar surged across the board on Friday, hitting a five-month high against the euro and a 17-month peak against the pound as the European Central Bank's caution on the growth outlook reinforced worries of a faltering global economy.

The dollar index vaulted to its highest in more than five months, with investors and analysts saying the U.S. currency is staging a broad rebound from record lows struck earlier in the year as the global slowdown takes a toll on other major currencies.
As investors rushed back to the greenback to cover short positions, the Australian dollar also shed about 1 percent and the New Zealand dollar lost 2 percent.

"We are seeing a shift away from a focus on the U.S. to a more global problem," said Sharada Selvanathan, a currency strategist at BNP Paribas in Hong Kong. "The dollar is getting a boost by default."

The ECB left rates unchanged at 4.25 percent as expected on Thursday, and while Trichet insisted inflation was still its main concern, analysts said he had little choice but to do so after a rate hike the previous month.

Instead, investors read Trichet's comments that growth had slowed more than expected as a sign that the central bank is less likely to hike rates and may eventually shift towards an easing bias on policy.

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