Thursday, August 30, 2007

Dollar gains amid anxious trading

hu Aug 30, 1:44 PM ET

LONDON (AFP) - The dollar gained slightly against the euro on Thursday as more volatile trading on global stock markets helped underpin the US currency.

In late European trading, the euro dropped to 1.3652 dollars, from 1.3676 dollars in New York late on Wednesday.

The dollar fell to 158.18 yen, from 116.13 yen on Wednesday.

"In the current environment movements in other markets, rather than data are what's driving currencies, and rising risk aversion is helping support the dollar," said Ian Stannard, currency strategist at BNP Paribas.

The dollar is seen as a safe-haven in times of financial instability and therefore tends to rise when conditions on markets are turbulent.

Choppy trading showed no sign of ending on Thursday, with a pattern established since the beginning of the month of large falls followed by large gains set to continue.

In the US on Thursday, data showed the US economy grew at a 4.0 percent pace in the second quarter, indicating strong momentum heading into the turbulence from housing and credit woes of August.

The Commerce Department marked up its estimate of gross domestic product (GDP) from last month of 3.4 percent growth, based on new data showing stronger US exports and business investment.

It was the strongest year-on-year growth spurt since the first quarter of 2006, but many economists say the world's biggest economy was slowing in the third quarter, hurt by a severe housing slump and the recent credit squeeze.

The Labor Department also reported 334,000 new jobless claims for the week ending August 25, while economists had predicted 322,000 new claims.

The figure was the highest since the 341,000 in the week ending April 14 and prompted concerns that troubles in the US housing sector were spreading to the labour market.

Sentiment on global stock markets had been buoyed on Wednesday after the release of a letter from Federal Reserve chairman Ben Bernanke to Senator Chuck Schumer.

The letter said the Fed was "prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets."

This led may to conclude that the Fed would cut interest rates in September.

Attention has now turned to a speech on Friday by Bernanke in Jackson Hole, Wyoming, with market participants looking for hints on whether the cut will materialise.

"Bernanke is likely to leave many in the market disappointed and play down the prospect of a cut, emphasising that the Fed will only lower rates as the economy slows, and not because of what's happening in the markets," added analyst Stannard.

In France OECD deputy-director Adrian Blundell-Wignall told reporters: "To cut interest rates in response of a crisis like this would be a mistake in my opinion.

"The Fed should only cut interest rates in response to its basic objectives which is the inflation rate and the health of the US economy."

The euro was changing hands at 1.3652 dollars, against 1.3676 dollars late on Wednesday, 158.18 yen (158.84), 0.6774 pounds (0.6778) and 1.6417 Swiss francs (1.6406).

The dollar stood at 115.86 yen (116.13) and 1.2025 Swiss francs (1.1995).

The pound was being traded at 2.0154 dollars (2.0173).

On the London Bullion Market, the price of gold climbed to 666 dollars per ounce, from 664.25 dollars late on Wednesday.