(ADVISORY: Please note that there is reduced FX coverage in
Europe on Monday owing to a public holiday in the UK. Full
European coverage will resume on Tuesday.)
* Dollar rallies, UK GDP backs slower global growth view
* Crude prices drop more than $6, cheering stocks
* Bernanke says dollar stability to slow inflation
(Adds details, updates prices, changes byline)
By Lucia Mutikani
NEW YORK, Aug 22 (Reuters) - The dollar surged on Friday,
recovering from the previous day's losses, as gloomy British
growth data backed views of a slowing global economy and raised
prospects of interest rate cuts outside the United States.
A $6.59 drop in U.S. crude oil prices to below $115 per
barrel, which contributed to a rally on Wall Street, and
comments by influential investor Warren Buffett that he has no
bets against the dollar also added to the U.S. currency's
upward momentum.
"UK GDP data weighed on the pound and sequentially on the
euro, the Aussie dollar and the Kiwi dollar, which are the
central banks looked at as potentially cutting interest rates,"
said David Watt, senior currency strategist at RBC Capital
Markets in Toronto.
Data showed the British economy stalled on the second
quarter, suggesting a recession might be looming, and added to
an overall bleak picture of a slowing European economy. It
raised the possibility of European Central Bank and Bank of
England monetary easing.
The euro <EUR=> dropped to a session low of $1.4760, edging
toward a six-month low hit earlier this week at $1.4631,
according to Reuters data. It was last trading at $1.4772, down
0.9 percent.
Despite Friday's losses, the euro was on track for its best
weekly gain against the dollar since mid-July.
The dollar jumped 1.5 percent to 110.03 yen <JPY=>, while
sterling slumped 1.5 percent to 1.8508 against the greenback
<GBP=>. The dollar was on pace for its best one-day gain
against the yen in more than two months at current prices.
The gains hoisted the dollar index to an intraday peak of
76.866 <.DXY>, not far from its 2008 peak at 77.413 hit early
this week. The index, which measures the dollar's value against
a basket of six currencies, was last up 1.0 percent at 76.789.
DOLLAR IN RECOVERY MODE
The dollar briefly trimmed gains against the euro in a
knee-jerk reaction to Federal Reserve Chairman Ben Bernanke's
comments that a stable dollar and falling commodities should
help slow inflation this year and next. For details, see
[].
Bernanke's remarks at an annual Fed symposium in Jackson
Hole, Wyoming, prompted analysts to reduce expectations of a
U.S. interest rate increase this year, which could diminish the
dollar's appeal to investors.
But analysts said even without an interest rate hike this
year, the dollar would probably continue to recover.
"In talking about the headwinds to the U.S. economy and
then indicating how they had cut interest rates so aggressively
... the Fed feels it has done a lot of work," said RBC Capital
Markets' Watt.
"If you contrast that with what is going on with UK GDP
numbers and how much work that still has to be done by a number
of the other central banks, it just entrenches the positive
U.S. dollar view," Watt said.
The dollar has soared this month as dealers have unwound
trades that bet on the global economy weathering the U.S.
downturn and the credit crisis. Investors, as a result, sold
the euro, British pound, Australian dollar and commodities.
Analysts said the dollar remained on track for a
medium-term recovery after a seven-year downtrend.
Persistent problems at U.S. mortgage finance companies
Fannie Mae <FNM.N> and Freddie Mac <FRE.N>, and speculation
over the future ofinvestment bank Lehman Brothers <LEH.N> could
make the road to recovery a bit bumpy, they warned.
"In the current environment of financial market
instability, traders needed Bernanke to reassure them that they
will take care of the financials first and worry about
inflation later, which was exactly what Bernanke delivered,"
said Kathy Lien, director of currency research at GFT Forex in
New York.
"However don't be mistaken, the Fed is still looking to
raise interest rates in 2009," Lien wrote in a note.
The Australian dollar dived 1.6 percent to US$0.8665
<AUD=>, while the Kiwi dollar tumbled 1.8 percent to US$0.7086
<NZD=>.
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
Jonathan Oatis)
