Bloomberg News
Wednesday, September 3, 2008; Page D06

NEW YORK, Sept. 2 — The dollar on Tuesday rose to the highest level against the euro in almost seven months as crude oil fell and traders speculated that the Federal Reserve’s monetary policy would help the U.S. economy outperform Europe’s and Asia’s.

The British pound fell to a two-year low versus the dollar on evidence of a looming recession in Britain. Australia’s dollar declined to its weakest level in almost a year after the central bank cut interest rates for the first time since 2001 and said economic growth would slow.

“We’re starting a new up cycle for the dollar,” said Scott Minerd, a market strategist at Guggenheim Partners in New York. “The economies in Europe, Japan and Asian nations are all slowing.”

The euro was worth $1.4508 Tuesday afternoon, down from $1.4617 Monday. The pound slid as much as 1.3 percent, to $1.7783, the lowest level since April 2006.

U.S. currency rose 6 percent versus the euro in August, its biggest monthly gain since the European currency started trading in 1999. The economies of Europe and Japan shrank in the second quarter, while U.S. gross domestic product expanded at a 3.3 percent annual pace.

Standard Chartered and BNP Paribas raised their forecasts for the U.S. currency. London-based Standard predicts the dollar will rise to $1.44 per euro by year-end and $1.36 by the end of the first quarter 2009, compared with previous forecasts of $1.49 and $1.42, respectively. BNP, based in Paris, forecasts the dollar will rise to $1.42 versus the euro and $1.71 per pound by year-end, stronger than old forecasts of $1.45 and $1.88.

Investors bought four times as many dollars in August compared with the average over the previous 12 months, according to Bank of New York Mellon.

“The dollar is cheap,” said Roddy MacPherson, an Edinburgh-based fund manager at Scottish Widows Investment Partnership. “The U.S. has been quite preemptive in bringing rates down, and that bodes better for the U.S. relative to many other countries.”

The Fed has cut the target rate for overnight lending between banks to 2 percent from 5.25 percent in September 2007 in response to the housing slump and credit market losses.

The Euopean Central Bank will hold its main refinancing rate at a seven-year high of 4.25 percent at its meeting Thursday, according to all but one of 53 analysts surveyed by Bloomberg News.

This article was derived from washingtonpost.com/wp-dyn/content/article/2008/09/02/AR2008090202624.html