Dollar Extends Gains Against Euro


The dollar consolidated its recent sharp gains against the euro on Wednesday, shrugging off concerns over the health of the US economy.

Analysts said the dollar’s resilience in the face of recent dismal US economic data could largely be put down to the fact that a lot of the bad news was already contained in the price.

Most of the reasons for being dollar bearish are behind us, not ahead of us,” said Jim O’Neill, head of global economic research at Goldman Sachs.

In contrast, analysts said the effect of a slowdown outside of the US had yet to be fully discounted by the market.

Indeed, David Simmonds at RBS, said the euro looked more vulnerable than the dollar because the decline in European growth had only just begun, and had, thus far, prompted no reaction from the European Central Bank.

The ECB has steadfastly stuck to its hawkish stance on interest rates as the Federal Reserve has slashed rates.

The downward momentum of the European economy now looks likely to continue even if the US manages to affect some sort of recovery by the second quarter,” he said.

The dollar rose 0.2 per cent to $1.4615 against the euro. The greenback also rose to a two-week high against the pound, climbing 0.2 per cent to $1.9580.

The pound lost ground after a survey showed UK consumer confidence dropped to a four-year low in January. Analysts said the figures cemented expectations that the Bank of England would cut UK interest rates by 25 basis points to 5.25 per cent after its policy meeting on Thursday.


TradingEconomics.com, Bloomberg
2/6/2008 6:26:21 AM