Dollar Surges vs Euro and Pound

The dollar surged higher on Friday, hitting a five-month high against the euro and a seventeen-month peak against sterling amid a growing conviction that the effects of the credit crisis were spreading across the globe.

Traders said thin August liquidity and the potential distressed selling of long-term bets against the dollar meant the risks of further large moves over the coming days were high.

The dollar rose 1.2 per cent to $1.5135 against the euro and climbed 1 per cent to $1.9239 against the pound.

Comments on Thursday from Jean-Claude Trichet, president of the European Central Bank, were the catalyst for the move as he warned the eurozone economy would weaken substantially in the coming months.

Analysts said the scale of positive sentiment toward the dollar was underlined by the fact that investors simply chose to ignore Mr Trichet’s tough rhetoric on inflation and attempts to play down the current weakness of the eurozone economy by claiming that the economy would recover before year-end.

Dollar Surges vs Euro and Pound, Financial Times
8/8/2008 6:45:40 AM