Economic data, hurricane aftermath weaken US dollar; sterling stronger

Story link: Economic data, hurricane aftermath weaken US dollar; sterling stronger

The currency markets were nervous on Thursday as investors worried that rising gasoline prices in the United States could negatively affect economic growth. These concerns were only exacerbated by figures showing that the US economy was already feeling the effect of high energy prices before Hurricane Katrina hit the Gulf Coast on Monday.

Some analysts, however, saw advantages to the dollar from the rebuilding that will be necessary in the wake of the storm as well as from the dollars European insurers will have to purchase in order to settle claims on storm damage. Additionally, the news that President George W. Bush was meeting with Federal Reserve chairman Alan Greenspan to talk about the economic impact of Katrina gave rise to rumors that the Fed could cut interest rates at its September meeting.

As a result of all this speculation, the US dollar fell against several major currencies. The greenback was down to $1.2524 in relation to the euro at mid-afternoon and fell to $1.8371 against sterling, a 2-month low. The dollar has lost nearly 3 percent to sterling since Monday. The US currency also fell to ¥110.01 against the yen and was down to SFr1.232 in relation to the Swiss franc.

Sterling was strong on Thursday as data was released showing that manufacturing activity in the UK had expanded for the first time in several months. The UK currency gained 0.5 percent to £0.6808 in relation to the euro, while it was up 0.8 percent to ¥201.16 against the yen.