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Dollar hits 11-month high PDF Print E-mail
Saturday, 06 September 2008

REUTERS, TOKYO- The dollar soared to an 11-month high against a basket of major currencies on Wednesday as more investors rushed to dump currencies like the euro and Australian dollar on a souring global economic outlook.

The dollar has also jumped on a tumble in oil prices below $110 a barrel after Hurricane Gustav left energy facilities in the Gulf of Mexico mostly unscathed. As oil prices dropped, more hedge funds and investors have liquidated bets favoring higher-yielding currencies and commodities.
 
The hefty losses of hedge fund Ospraie Management LLC on the sell-off in energy commodities highlights the troubles some funds are facing.
 
The euro hit a seven-month low against the dollar and the sterling slumped to a 2-1/2 year low as market players cut positions before policy decisions by both the European Central Bank and the Bank of England on Thursday.
 
The Australian and New Zealand dollars fell more than 1 percent to a one-year low against the dollar. Selling of the Aussie picked up after data showing Australian economic growth slowed slightly more than expected in the second quarter.
 
The sharp slide in the euro and Aussie has also forced players to cut back on carry trades in which the low-yielding yen was used to fund positions in higher-yielding currencies.
 
"Investors are unwinding positions in the yen crosses on the growing view that these currencies have now entered a medium- to long-term downtrend," said Hiroshi Yoshida, a trader at Shinkin Central Bank.
 
The dollar index .DXY, which tracks its performance against six major currencies was up 0.6 percent at 78.484 and touched an 11-month high of 78.546.
 
The dollar index has gained about 9 percent since mid-July, in the process breaking long-term technical resistance levels that have convinced many analysts it is poised for a long-term recovery.
 
The euro eased 0.6 percent against the dollar to $1.4434. Sterling was also down 0.6 percent, at $1.7715.
 
Traders said hedge funds were rushing to cover short positions on the dollar, leading to large-sized offers in the euro and sterling.
 
Investors are cutting back on currencies that had risen over the past few years, such as the Australian dollar and the euro, after getting caught off guard by bleak outlooks for their economies, traders said.
 
Some traders said Japanese retail margin traders, who make leveraged bets with borrowed funds, were forced to shed the Aussie and the New Zealand dollar in an attempt to cut losses.
 
The Aussie fell 1.5 percent against the dollar to $0.8251. Against the yen, the Aussie lost 1.1 percent to 89.94 yen after hitting a five-month low earlier.
 
Australian economic growth slowed to 0.3 percent in the second quarter for a 2.7 percent annual pace, below forecasts and reinforcing expectations that the Reserve Bank of Australia will cut interest rates further.
 
The euro slipped 0.3 percent to 157.33 yen barely above a five-month low of 157.00 yen hit on Tuesday. The dollar inched up 0.3 percent against the yen to 109.01 yen.
 
The dollar had gained on Tuesday as crude oil fell below $110 for the first time since April, tumbling to as low as $105.46 per barrel. The sharp drop in gold and commodities has reinforced the dollar's surge over the past several weeks.

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