👀 Ones to watch: The MOST undervalued stocks to buy right nowSee Undervalued Stocks

FOREX-Dollar hurt by high oil prices, hits 3-mth low

Published 02/28/2011, 06:06 AM
Updated 02/28/2011, 06:08 AM

* Dollar-index slides to three-month low of 76.812

* High oil prices likely to keep Fed policy loose

* Expectations of a hawkish ECB supports euro (Adds quote, detail, updates prices)

By Neal Armstrong

LONDON, Feb 28 (Reuters) - The dollar fell to three-month lows on Monday on expectations that the threat to growth from high oil prices would keep U.S. monetary policy loose, contrasting with a more hawkish outlook elsewhere.

The dollar index, which tracks the greenback's performance against a basket of major currencies, skidded to 76.812, its lowest level since November 9. The euro accounts for over half of the basket.

Traders said the move below the February trough of 76.881 had triggered fresh-selling by "model" accounts, which are based on computer-generated trading recommendations.

The U.S. unit has been hit hard by rising oil prices as investors fret the U.S. economy will suffer more than others, given its strong reliance on consumer spending for growth.

Prices rose more than $1 per barrel on Monday as protests in Oman fuelled wider concern about security of supply from the Middle East after uprisings in Libya dramatically reduced exports from North Africa.

"Rising oil prices help to widen the perceived policy divergence between the Fed and other major central banks," said Lee Hardman, currency analyst at BTM-UFJ

"The ECB sees rising crude as an upside risk to inflation rather than the Fed's view that it will be negative for growth. This is increasing the risks of a near-term overshoot for the euro."

The euro rose around 0.6 percent versus the dollar at $1.3845, a four-week high. Technical analysts said a break of the euro's year-to-date high at $1.3862 was needed for added momentum.

Traders said a UK clearer was a heavy buyer of euros through the morning, while offers were cited ahead of an option barrier at $1.3850.

The euro was susceptible to profit-taking as the latest data showed currency speculators had boosted bets in favour of the euro to the highest since October in the week ended Feb. 22.

But expectations that the European Central Bank at its meeting on Thursday may signal its willingness to raise rates were supporting the euro, after a series of ECB policymakers have sounded a hawkish tone in recent weeks.

FED EYES GROWTH

Final euro zone inflation data for January came in slightly softer than the estimate at 2.3 percent year-on-year but that did little to dent the euro.

"The fact remains that euro zone consumer price inflation is still at a 27-month high and set to rise further in the near term due to the spike in oil prices as well as elevated commodity and food prices," said Howard Archer, chief European economist at IHS Global Insight.

In contrast, Fed officials are keeping an eye on growth and have set a high bar for tweaking their $600 billion bond buying program. Financial markets will look to congressional testimony by Fed Chairman Ben Bernanke this week to try to discern the current state of debate within the central bank.

"The dollar is likely to stay weak for now as investors expecting central banks to hike rates in response to higher oil prices favour the euro, pound and Swedish krona," said UBS fx analysts in a note.

The dollar was down 0.2 percent against the Swiss franc at 0.9265 francs, near a record low of 0.9229 hit on EBS last week.

The dollar was steady at 81.74 yen, with traders reporting a layer of strong bids down to 81.00 cushioning the pair.

(Editing by Patrick Graham)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.