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FX round-up: Dollar shifts into reverse

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Date: Friday 22 Aug 2008

LONDON (ShareCast) - Higher oil prices and some less than stellar US economic data saw the dollar give back some of its recent gains.

The greenback’s recent rally has largely coincided with the price of oil coming off the boil, but with the contract for crude for October delivery hitting its highest level since 4 August the US currency came under pressure.

The US index of leading economic indicators fell 0.7% in July, hitting its lowest level in almost four years, adding further weight to the view that the US economy is seizing up. Analysts had been expecting a fall of just 0.2%.

Enduring concerns over the health of the US financial sector also undermined support for the greenback.

Citicorp released a report suggesting that Goldman Sachs, Lehman Brothers and Morgan Stanley could write down an aggregate $6.4bn in their third quarter results.

Ratings firm Standard & Poors also stuck the knife in to the US banking sector by warning that more downgrades could be on the cards. S&P said in a report released today that US banks are about halfway through the credit downturn.

Sterling, by contrast, gained after a surprising rise in retail sales. Retail sales jumped 0.8% in July despite the biggest rise in prices for more than a decade. Analysts had expected figures to show a 0.2% fall.

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