Dollar falls in London

The dollar weakened across the board on Tuesday, supported by an easing in risk aversion after gains in stock markets and oil prices reflected an upbeat view on the prospects of global economic recovery. Sterling hit an eight-month high against the dollar, while the US currency came under pressure against the Australian and New Zealand dollars.
As share markets in Asia rose and US stock futures pointed to a positive Wall Street open. Currency movements were also exacerbated by month-end and quarter-end flows, analysts said. "We came out of the Asian session with a relatively positive stance on the world. The two things combined (the spike in oil prices and rallying equity markets) did lead to a degree of positive sentiment in the market," said Simon Derrick, head of currency research at Bank of New York Mellon.
The expectation of global economic improvement gained support from the CBOE Volatility Index, Wall Street's so-called fear gauge, which dipped to its lowest level since just before Lehman Brothers collapsed last September. By 1038 GMT, the dollar index, which measures the dollar against a basket of six currencies, was down 0.2 percent to 79.646. The index is on track for its worst quarterly performance since Q4 2004, down some 6.8 percent.
Sterling trimmed gains after weaker-than-expected UK gross domestic product (GDP) figures suggested the economy would continue to struggle. The pound fell to around $1.6588 as data showed the economy contracted 2.4 percent in the three months to March, the biggest decline in 50 years.
The pound had earlier climbed to around $1.6745, the highest since last October, according to Reuters data, after data showed UK house prices rose for the second straight month in June. The euro was up 0.4 percent at $1.4125 while the dollar was down 0.3 percent against the yen at 95.80 yen. The Australian dollar climbed 0.8 percent to $0.8130 while the New Zealand dollar rose 0.2 percent at $0.6510.
Stock markets have rallied since lows hit in March, boosting views that the global economy could be on the road to recovery. The MSCI global stocks index was on course for its best quarter since its launch in 1988, up some 22.5 percent, while oil hit an 8-month high of $73.38 a barrel.