Sterling rose to a 26-year high versus Dollar above 2.0600

July 24, 2007 – 3:46 am

The dollar edged higher against the euro on Monday, recovering from a record low as dealers awaited economic data later in the week to see if U.S. credit market turmoil has spread to other sectors. Short-term investors closed their bets against the Dollar after the euro failed to sustain gains beyond record highs 1.3847, allowing the dollar to stabilize near 12-year lows against a basket of major currencies. Analysts said “we’ve had an enormous rally in currencies against the Dollar and at some point in time people want to take some money off the table. But bearish sentiment on the dollar is still the strongest we’ve seen in some time, and any good dips in the euro are probably going to be seen as opportunities to buy again”.

Yesterday, EurUsd traded at 1.3796 down 0.2%, after hitting an all-time high earlier in the session of 1.3847. GbpUsd rose to a 26-year high above 2.0600, before paring those gains to trade only slightly up on the day at 2.0591 up 0.15%. UsdChf climbed 0.42% percent to 1.2060. UsdJpy slipped 0.2% to 120.96, having hit a six-week low around 120.80 yen earlier in the day. The New Zealand dollar surged above 0.80 against Dollar for the first time since the currency was floated in 1985, strengthening to a high of 0.8072 and gaining 1.07% on the day. The Reserve Bank of New Zealand is expected later this week to continue raising rates, which are already among the highest in industrialized countries.

The US currency is coming off five consecutive weeks of declines, mostly on fears of widespread fallout from the US sub-prime mortgage crisis. Analysts said “Reflecting the growth and interest rate divergence between the U.S. and the rest of the world, the dollar will likely continue to be treated as the sub-prime currency”.

There were no major economic data releases from the United States, UK or the euro zone on Monday, leaving FX investors to focus on equity, credit and bond markets for direction. U.S. existing home sales data for June are due on Wednesday and new home sales data comes on Thursday. The market will also get its first look at second-quarter U.S. Gross Domestic Product growth on Friday.

by Jean-Claude Braha
Advanced Currency Markets, Geneva, Switzerland