forex news

Dollar Snaps Five-Day Rally Versus Euro on Bets Gains Excessive

Aug. 12 (Bloomberg) -- The dollar snapped a five-day winning streak against the euro on speculation the currency's recent gains are too fast to be sustained.

The greenback has rallied 4.3 percent versus the euro this month on speculation the U.S. economic slowdown is spreading to Europe and as commodity prices have tumbled. The ruble rose the most in seven years against the dollar as Russia called off military operations in Georgia.

``The dollar's rally was overextended,'' said Steve Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. ``It has been such a one-way street.''

Against the euro, the dollar traded at $1.4910 at 11 a.m. in New York, compared with $1.4909 yesterday. It touched $1.4816, the strongest since Feb. 26. The dollar decreased 0.3 percent to 109.75 yen, from 110.06 yesterday, when it touched the seven-month high of 110.40. The euro fell 0.2 percent to 163.77 yen after touching 163.26, the lowest since June 5.

The euro has dropped 7 percent against the dollar since reaching the all-time high of $1.6038 on July 15. The 14-day relative strength index of the euro against the dollar was 22.40 today. A reading below 30 suggests a change in price direction is imminent.

The ruble was one of the biggest gainers versus the dollar after President Dmitry Medvedev ordered a halt to its offensive in Georgia, saying the military had achieved its goal. Russia's currency rose as much as 1.2 percent to 24.1447 per dollar, its biggest jump since Jan. 4, 2001. Against the euro, the ruble rose as much 1.4 percent, the steepest gain since 2005.

The currency dropped 2.3 percent against the dollar on Aug. 8 after Russian Prime Minister Vladimir Putin said war with Georgia had started.

Dollar Index

The Dollar Index, which gauges the greenback against the currencies of six major U.S. trading partners, was little changed at 76.135. It touched 76.616, the highest level since Feb. 12. The index rose 1.7 percent on Aug. 8, the biggest jump in six years.

``It's just time for a bit of correction,'' said MatthewKassel

, director of proprietary trading at ING Financial Markets LLC in New York. ``The dollar's rally is exhausted.''

The dollar surged 2.1 percent against the euro on Aug. 8, the biggest one-day gain since January 2001.

The yield on three-month Euribor contract for June decreased 0.05 percentage point to 4.48 percent today, indicating investors bet the European Central Bank may lower its main refinancing rate from a seven-year high of 4.25 percent by the second quarter of 2009.

Germany's Economy

Germany's economy, the largest in the 15-nation region that uses the euro, probably contracted in the second quarter for the first time in almost four years, according to the median forecast of 41 economists surveyed by Bloomberg News. The government is due to report the data on Aug. 14.

In Japan, a report tomorrow may show gross domestic product shrank at an annual rate of 2.3 percent in the three months ended June 30, following 4 percent growth in the previous quarter, according to a separate Bloomberg News survey.

``The market has become less bearish about the U.S. and, comparatively speaking, much more bearish about what's going on in the rest of the world,'' said Mike Moran, a senior currency strategist at Standard Chartered Bank in New York, in an interview on Bloomberg Television.