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Dollar hurt by high oil prices, hits 3-month low

London, February 28, 2011

The dollar fell to three-month lows on Monday on expectations that the threat to growth from high oil prices would keep US monetary policy loose, contrasting with a more hawkish outlook elsewhere.

The dollar index, which tracks the greenback's performance against a basket of major currencies, skidded to 76.812, its lowest level since November 9. The euro accounts for over half of the basket.

Traders said the move below the February trough of 76.881 had triggered fresh-selling by 'model' accounts, which are based on computer-generated trading recommendations.

The US unit has been hit hard by rising oil prices as investors fret the US economy will suffer more than others, given its strong reliance on consumer spending for growth.

Prices rose more than $1 per barrel on Monday as protests in Oman fuelled wider concern about security of supply from the Middle East after uprisings in Libya dramatically reduced exports from North Africa.

'Rising oil prices help to widen the perceived policy divergence between the Fed and other major central banks,' said Lee Hardman, currency analyst at BTM-UFJ.  
Fed officials are keeping an eye on growth and have set a high bar for tweaking their $600 billion bond buying program.

Financial markets will look to congressional testimony by Fed chairman Ben Bernanke this week to try to discern the current state of debate within the central bank.

'The dollar is likely to stay weak for now as investors expecting central banks to hike rates in response to higher oil prices favour the euro, pound and Swedish krona,' said UBS fx analysts in a note.

The dollar was down 0.2 per cent against the Swiss franc at 0.9265 francs, near a record low of 0.9229 hit on EBS last week.

The dollar was steady at 81.74 yen, with traders reporting a layer of strong bids down to 81.00 cushioning the pair.-Reuters




Tags: Foreign Exchange | currencies | US Dollar |

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