Dollar hits one-year high

The dollar advanced to a new one-year high against the euro on Thursday as investors refocused on sluggish economic prospects outside the United States, although worries about the US financial system hung over the market.
The New Zealand dollar plummeted to a near two-year low against the dollar after the Reserve Bank of New Zealand cut interest rates by a bigger-than-expected 50 basis points to 7.5 percent, the second consecutive reduction. "The market's direction points toward dollar buying," said Hideaki Inoue, chief manager of forex trading at Mitsubishi UFJ Trust Bank.
"What we are witnessing now is position adjustments that are part of a bigger picture, one in which investors are pulling back money from risk assets," Inoue said.
The euro dropped 0.1 percent to $1.3954 after touching a new one-year low of $1.3933. Against the yen, the euro fell 0.5 percent to 149.86 yen after dropping as low as 149.62 yen, a new 13-month low, in a choppy trade. Euro zone economic growth will halve in 2008 from 2007 and inflation will be much higher because of financial turmoil, soaring commodity prices and housing market shocks, the European Commission said on Wednesday.
It slashed its gross domestic product growth prediction for the euro zone to 1.3 percent from the 1.7 percent predicted in April. The shift in the market's focus toward weakening growth outside of the United States enabled the greenback to brush aside news on Wednesday that Lehman Brothers posted third-quarter losses and failed to announce concrete plans to raise capital.
Prior to the results release by Lehman, the dollar retreated against the yen on fears that bad news from the Wall Street bank could worsen concerns about the US financial sector. On Thursday, the dollar slipped 0.3 percent to 107.40 yen but was off the low of 106.58 yen brushed the previous day.
The New Zealand dollar fell 0.5 percent to $0.6491 after plunging to $0.6488 its lowest point since October 2006. RBNZ Governor Alan Bollard said New Zealand's economy is in a shallow recession but should return to growth by the end of the year. The Australian dollar spiked briefly against the US dollar and the yen on stronger-than-expected Australian employment data but the rally was short-lived.
Australian employment rose by 14,600 in August, much higher than the 5,000 forecast. The country's jobless rate also dipped to 4.1 percent from 4.3 percent in July.
"The Australian economy is unlikely to turn around on this data alone," said Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland. "Some short-covering emerged in a knee-jerk reaction to the upbeat headline numbers, but such moves are unlikely to derail the currency's downtrend," Yamamoto said.
The Aussie, which fell to a 13-month low of $0.7945 earlier in the day, jumped to an intraday high of $0.8020 after the data. It later dropped back to $0.7975. It lost 0.3 percent to 85.54 yen in sight of a two-year low of 84.98 yen hit last week.