Dollar rises, analysts say rally only temporary

LONDON, Feb 18, 2008 (AFP) — The dollar rallied against other leading currencies on Monday but was expected to struggle to keep its gains against the euro and yen because of concerns about the weak US economy, analysts said.

US markets were closed on Monday owing to a public holiday in the United States.

In European trading, the euro fell to 1.4636 dollars from 1.4683 in New York late on Friday.

Against the Japanese currency, the dollar rose to 108.24 yen from 107.72.

“Today’s President’s day holiday in the US could result in thin trading conditions and in turn exaggerated markets moves,” said Calyon economist Mitul Kotecha.

The dollar was rising after falling throughout last week when Federal Reserve chairman Ben Bernanke kept the door open for further cuts to US interest rates owing to continuing signs of trouble in the American economy.

“We expect the dollar to remain under pressure and to be unable to post gains on a sustainable basis in the coming weeks, as the slowing economy means that US fundamental data will come in much weaker in the first quarter as already seen,” said analyst Gavin Friend at Commerzbank.

A flurry of soft US economic data released last week, including figures on consumer sentiment and regional manufacturing activity, continued to weigh on investor confidence, analysts said.

“These weak US economic reports served to reverse the more optimistic attitude towards the economy which had been triggered by stronger-than-expected retail sales earlier in the week,” noted NAB Capital strategist John Kyriakopoulos.

Bernanke said last week that there were strong “downside risks” to US economic growth and that the Fed was ready to respond as necessary, which was seen as a hint that further interest rates cuts might be in the pipeline.

“There is more uncertainty now on how deep the economic slowdown will be. The inclination is to sell the dollar as the Fed lowers interest rates,” said David Cohen, a director of Asian economic forecasting at Action Economics.

In Europe on Monday, the euro changed hands at 1.4636 dollars against 1.4683 late on Friday, at 158.42 yen (158.18), 0.7502 pounds (0.7484) and 1.6113 Swiss francs (1.6049).

The dollar stood at 108.24 yen (107.72) and 1.1008 Swiss francs (1.0927).

The pound was at 1.9512 dollars (1.9612).

On the London Bullion Market, the price of gold dropped to 903.75 dollars an ounce from 912.50 dollars late on Friday.