Wednesday, July 30, 2008

Dollar Rises to One-Month High as Confidence Rises, Oil Falls

Dollar Rises to One-Month High as Confidence Rises, Oil Falls

July 29 (Bloomberg) -- The dollar advanced to a one-month high versus the euro and the yen as U.S. consumer confidence increased and crude oil prices dropped, reducing concern the economy may fall into a recession.

The currency rose against the yen and New Zealand's dollar as unemployment climbed in Japan last month and home building permits fell to the lowest in almost 22 years in New Zealand. The pound fell versus the dollar after an index of U.K. retail sales dropped in July to a 25-year low.

``A lot of bad news has been priced in,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut.

The dollar increased 0.8 percent to $1.5616 per euro at 10:28 a.m. in New York, from $1.5741 yesterday. It touched $1.5596, the strongest level since June 25. The U.S. currency appreciated 0.7 percent to 108.18 yen, from 107.46, and reached 108.29, the highest since June 25. The euro traded at 169.13 yen, compared with 169.17.

Sterling weakened 0.6 percent to $1.9813 after the Confederation of British Industry said its survey of 82 retailers showed 25 percent sold more goods than a year earlier and 61 percent sold fewer. The net rounded balance of minus 36 percentage points was the lowest since the survey began in 1983.

Weaker Yen

The yen declined earlier against the dollar after government reports showed Japan's unemployment rate rose in June to 4.1 percent, the highest level in almost two years, and household spending fell, adding to signs the economy's longest postwar expansion may be ending.

The New Zealand dollar fell against all of the other major currencies after a report showed home building approvals decreased 20 percent in June to 1,337, the lowest since October 1986. The kiwi declined 1.2 percent to 73.66 U.S. cents.

``At this stage, bad news in the U.S. will be translated to bad news elsewhere,'' Ruskin said. ``It provides some cushion to the dollar.''

In France, a gauge of consumer sentiment dropped in July to minus 48, the lowest level since the index was introduced in 1987, from minus 46 in June, according to Insee, the national statistics office in Paris.

``The euro-zone economy's outlook has really become more bleak,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. ``Ultimately, that means the upside for the euro-dollar is becoming more capped.'' The euro will decline to $1.55 by year-end, Rabobank forecasts.

European Outlook

Traders reduced bets the ECB will raise its 4.25 percent main refinancing rate this year. The implied yield on the December Euribor futures contract dropped to 5.09 percent, from 5.12 percent yesterday.

The Conference Board's confidence index rose this month to 51.9, higher than forecast, from a revised 51 in June. The Standard & Poor's 500 Index increased 1.2 percent, after falling 1.9 percent yesterday.

Crude oil for September delivery dropped as much as 1.5 percent to $122.92 a barrel. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes.

China's yuan advanced after central bank Governor Zhou Xiaochuan underscored policy ``continuity,'' spurring speculation China will let the currency rise further to stem inflation. The yuan climbed 0.1 percent to 6.8256 per dollar.

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