The dollar held near a 15-year low against a basket of currencies on Friday as investors waited for US data to see whether the housing market troubles had taken a toll on consumers.
Worries about the wider implications of the US subprime mortgage market crisis - and the credit crunch that it sparked - were fanned by news that major UK mortgage lender Northern Rock became the latest victim of tighter liquidity.
The dollar's woes remain the main focus after the currency tumbled to record lows versus the euro this week on widespread expectations for the Federal Reserve to start cutting interest rates next week to aid the weakening US economy.
A raft of US figures - including retail sales and industrial production - will be scrutinised on Friday for any further clues about the Fed policy outlook and signs of credit concerns making the consumer more prone to save than spend.
"The markets have been fairly dollar negative sentiment wise for a couple of weeks already so there is a risk of a dollar short-covering rally and that's probably what's stopping the dollar from drifting down any more today," Adam Cole, global head of FX currency strategy at RBC Capital Markets. On Friday, the dollar index rose a touch to 79.642, having plumbed a 15-year low of 79.302 the previous day.
The euro steadied at $1.3860, after striking $1.3927 according to Reuters data on Thursday, the highest since its launch in 1999. It showed little reaction to a downward revision in eurozone August inflation, to an annual 1.7 percent.
The yen firmed to 114.78 per dollar and 159.08 per euro. The yen - which sometimes trades as proxy for the Chinese yuan - shrugged off news that the People's Bank of China raised both the lending and the discount rate by 27 basis points.
"The yen is not really reacting to fundamental factors - it's really the carry trade and risk aversion that's driving yen at the moment," said Mitul Kotecha, head of global foreign exchange research, Calyon in London.
The pound fell to a new 14-month trough of 68.92 pence per euro after the Bank of England propped up mortgage lender Northern Rock, which became the biggest British casualty so far of the global credit squeeze.
Soft UK housing data, released ahead of schedule, further added to sterling's woes. US retail sales, due at 1230 GMT, are forecast to have risen 0.4 percent in August, which would show household spending holding up at a decent pace.
"Key to the US story into 2008 is the degree that markets troubles feed into the economy. The US consumer, which contributes over 60 percent of GDP is the crucial component in this. Weak numbers today would lead to dollar losses," ING said in a note to clients.
US industrial output data for August is due at 1315 GMT. Still, limited easing of tensions in money markets and signs of a deeper US housing downturn have convinced markets that the Fed will cut rates next week by at least 25 basis points and possibly 50 basis points from the current 5.25 percent.
European equities fell and investors grew nervous as more banks or funds could face liquidity squeeze and report losses tied to US subprime mortgages, or face big commitments to the nearly frozen market for asset-backed commercial paper.
Comments
Comments are closed.