Saturday, August 9, 2008

US stocks surge on ‘watershed’ dollar jump

By Peter Garnham in London and John Authers in New York

US stocks soared on Friday as the dollar saw its biggest one-day jump against the euro in eight years and oil prices plunged.

The moves marked a key reversal of a trend that many investors had followed profitably for months – betting that high commodity prices would keep the dollar weak.

The dollar reached its highest in five months against a trade-weighted basket of currencies, while oil fell more than $5 to $114.87, 22 per cent below its record high of $147.27 last month. The S&P 500 closed 2.4 per cent higher in New York.

The shift in sentiment was triggered by Jean-Claude Trichet, president of the European Central Bank, who warned on Thursday that third-quarter eurozone growth would be “particularly weak”. This sparked talk that the ECB would be forced to abandon its hawkish policy stance and start cutting interest rates, thereby weakening the euro.

“This is the watershed week for the US dollar,” said Marc Chandler, currency strategist at Brown Brothers Harriman. “The magnitude of the dollar’s moves and the breaking of key technical levels suggest that a major shift in the outlook towards the dollar is occurring as massive positions are adjusted.” Other analysts described the widespread buying of dollars as “capitulation”.

The dollar hit a five-month high of $1.5055 against the euro and climbed 1.3 per cent to $1.9189 against the pound – its strongest since November 2006.

Financial Times read more.


Jim said...

I hope the dollar and the DOW keep surging up up up!

Anonymous said...

I hope we see the same, Jim. I think that more than a strengthening of the dollar, we are seeing a weakening of the euro. Might be due to the war close by. We'll know when we see these morons come to some sort of cease-fire agreement. Crap, I'm name calling again! - sorry