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Dollar Gains, Boosted by Oil, Stocks; Yen Falls

Reuters
Wednesday, 23 Jul 2008 | 9:38 AM ET

The dollar hit a one-month peak against the yen and a two-week high against the euro Wednesday, getting support from a slide in oil prices and a recovery in risk appetite.

With oil more than $20 below this month's record peaks and world stocks on a six-day winning streak for the first time in two months, the improved risk appetite also pushed the low-yielding, safe-haven yen to a record low against the euro as investors sought higher returns elsewhere.

"We're seeing a bit of a broad dollar rally against most of the G10 currencies this morning," said Dustin Reid, senior currency strategist at investment bank ABN Amro in Chicago.

"We're seeing, in general, some positive (corporate) earnings news as well as lower oil prices, which are both helping the dollar sentiment this morning across the board," he said.

"There seems to be a decent amount of risk appetite out there across asset classes."

In early trading in New York, the dollar climbed to its highest level in a month at 107.92 yen, according to Reuters data, before easing back slightly.

The euro had fallen as low as $1.5719, its weakest level since July 10 and more than 3 U.S. cents below last week's record high of $1.6037, according to Reuters Dealing.

Adding to the euro's downside was data showing euro zone new orders falling at their fastest monthly pace in 6-1/2 years.

Reflecting improved risk appetite, the dollar rose to a one-month high of 1.0365 safe-haven Swiss francs, while the euro scaled a two-month peak at 1.6305 francs.

The euro also rose to a record high at 169.98 yen according to Reuters data before pulling back.

In the oil market Wednesday, U.S. crude futures fell further to $126.91 per barrel, down 1.2 percent, giving the dollar a generally bid tone.

The greenback also continued to benefit from comments from Philadelphia Federal Reserve President Charles Plosser, who said Tuesday that rising inflation could force the Fed to start raising interest rates even before labor and financial markets recover.

Beige Book, More Data Ahead

The latest clues on the state of the U.S. economy were expected at 2 p.m., when the Federal Reserve was scheduled to release its Beige Book of economic conditions.

Analysts said that a bumper data day on Thursday -- along with oil price and equity developments -- would also be key in determining whether the slide in euro/dollar lasts or soon gives way to another try at the $1.60 level and above.

U.S. existing home sales will vie for attention with German Ifo business sentiment survey and euro zone flash PMIs.

"We remain cautious in chasing the dollar higher at present, but if the earnings season concludes without incident, and key euro zone data continue to deteriorate, EUR/USD may turn decisively," investment bank UBS said in a research note.

"Disappointment with tomorrow's Ifo release may open the way to further EUR/USD downside," UBS said.

The biggest loser among the majors was the New Zealand dollar , which slipped nearly 1 percent against the U.S. currency after New Zealand finance company Hanover Finance said it was suspending repayments of existing loans and interest.

Analysts said there could be scope for a recovery, though, if the Reserve Bank of New Zealand leaves rates on hold at 8.25 percent on Thursday, disappointing minority bets for a cut.

The outlook for British monetary policy is less clear, with Bank of England minutes on Wednesday showing one policy-maker unexpectedly voted for a rate hike this month, in addition to an as-forecast call for a cut from arch-dove David Blanchflower.

The outcome boosted sterling across the board, pushing the euro to 78.62 pence, the lowest since June 20.

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