Sun, Nov 18, 2007 - Page 10 News List

Surprise industrial production decline weakens US dollar

AFP , NEW YORK

The US dollar weakened against the euro and the British pound on Friday in the wake of fresh economic news including a report that showed a surprise drop in US industrial production last month.

US industrial output fell 0.5 percent last month, marking the biggest decline in production since January. Traders said the report weighed on the US dollar as it raised concerns about US economic growth.

The euro, which has risen strongly against the US dollar this year, climbed to US$1.4659 compared with US$1.4609 late on Thursday. On Wednesday, the euro spiked above US$1.47, flirting with its record high of US$1.4752 struck on Nov. 9.

The US dollar, which has weakened considerably against the euro and other currencies this year, also came under pressure from a separate government report which revealed a lower-than-expected flow of international capital into the US during September.

The US capital flow balance rebounded in September to a surplus of US$26.4 billion, compared with a deficit of over US$70 billion in the prior month, but September's reading fell short of market hopes which had anticipated inward flows of around US$70 billion.

"Falling investment rates in US financial markets raised fears of further deterioration for the country's international balance of payments and bode poorly for the domestic currency," said David Rodriguez, a currency analyst at Forex Capital Markets.

"Subsequent industrial production numbers hardly helped the dollar's cause, and there seems to be little in the way of fundamental data to improve investor sentiment on the US economy," Rodriguez said.

Fed chairman Ben Bernanke has warned that US economic growth is likely to slow in coming months, amid a housing slump and rising energy prices, and concerns about interest rates have also weighed down the US dollar.

Market chatter earlier this week suggesting the Fed could cut rates at a planned Dec. 11 meeting had dented the US dollar, although many economists expect the central bank to keep its key fed funds interest rate pegged at 4.5 percent next month.

The US dollar could come under further pressure from the Gulf states, where a group of six oil-rich countries, the Gulf Co-operation Council, looks set to unpeg their currencies from the US unit in the coming weeks, analysts said.

The euro meanwhile continued to strengthen against the pound, briefly hitting a new high of 0.717 as currency speculators readjusted their expectations for interest rates in Britain and the eurozone.

The Bank of England's dovish report on inflation earlier this week and a warning on house prices are stoking expectations that British interest rates could be trimmed in future months.

The pound rose to US$2.0546 compared with US$2.0448 late on Thursday.

In late US trade, the US dollar stood at 1.1175 Swiss francs from SF1.1222. The US dollar surged to ¥111.07, against ¥ 110.26 a day earlier.

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