US dollar tumbles against the euro (page 1 of 2)

Euro

The dollar slipped at the onset of the week, hurt by falling stocks and some modestly weaker-than-expected U.S. economic data.

A report showed that a key U.S. economic forecasting gauge showed strength in June, suggesting the pace of growth would quicken in the second half of this year. The Conference board said its leading indicators index rose 0.1 pct last month, falling short of Wall Street's expectations of a 0.2 pct rise.

With investors hungry for strong confirmation of the economic recovery during a week light on economic data, traders used the leading indicators index as an opportunity to take profits on the dollar. Poorly performing benchmark stocks too offered an added incentive to drive the dollar lower.

However, the following day the greenback rallied against major rivals after the U.S. military said two sons of Saddam Hussein had been killed in Iraq during a shoot out in the northern city of Mosul.

Nevertheless, the dollar's gains from developments in Iraq were somewhat muted as traders began to return their attention to U.S. stock and bond markets. Luck changed hands and the dollar once again tumbled against the euro undermined by falling U.S. stocks and renewed concerns about the health of the economy underscored by remarks made by a senior Federal Reserve official.

Federal Reserve Governor Ben Bernanke said in his prepared speech that the Fed could lower interest rates even further to keep the U.S. economic recovery on track and ward off deflation. His remarks sparked speculation that global funds may flow back to higher yielding currencies.

On the last trading day the dollar weakened broadly against all major currencies as investors sceptical of the U.S. economic rebound looked doubtfully at strong data on housing and durable goods. The Commerce department reported that new orders for costly manufactured goods surged 2.1 pct in June, the fastest rate in 5 months, well above Wall Street's expectations of a 1.0 pct rise.

Additionally, sales of existing homes dipped a modest 0.3 pct in June while sales of new homes hit a record pace. Evidence that the U.S. economy is said to grow strongly has eluded investors, who in recent weeks have begun selling stocks and the dollar anew after a period of buying both in anticipation of an economic revival.

As a result market participants say the combined data, though constructive, still fell short of what investors needed to see to lend credence to the recovery story and continue buying both America's assets and its currency. The euro hit a session high of $1.1550 against the dollar after the data and ended the trading week just above 1.1500 levels.

The euro's strength however, does not come without its drawbacks. The European commission said that the euro's second quarter rally reduced eurozone producers' competitiveness by 3.5 pct. Several European corporations said that the euro's high exchange rate had damaged their profits.

In the coming week, economic data will move centre stage with a slew of indicators on world labour markets and consumer and manufacturing trends available to satisfy market desire for clues on global recovery.

Germany's closely watched business climate index from the Ifo institute will launch the data marathon on Monday, likely to show an increase for the third month in a row and raising hopes for improvement in the eurozone's largest, most troubled economy. United States' indicators, including two consumer confidence surveys, non-farm payrolls and the Chicago Purchasing Management index, could all give a boost to economic recovery hopes, economists' polls have shown.