August 18, 2008

LONDON (AFP) — The dollar slipped back Monday on profit-taking after recent gains while the euro found only modest support as the market anticipated more weakness in the European economy.

Dealers said trade was relatively quiet, with the exchanges between Washington and Moscow over the conflict in Georgia appearing to have no impact on sentiment.

In late London trade, the European single currency was at 1.4741 dollars, up from 1.4685 dollars in New York late on Friday.

Against the Japanese currency, the dollar fell to 110.12 yen from 110.48.

“It is a quiet start to the week for the markets in terms of economic data and indeed for the week as a whole things could be relatively patchy which should mean little prospect of a re-think in terms of the interest rate outlook in developed markets,” said Calyon analyst Daragh Maher.

The dollar last week jumped to a six-month high against the euro and its strongest level since January against the yen on worries that the fallout from the US financial crisis was spreading to other major economies.

Markets were looking ahead to the results of the ZEW survey of German business confidence due Tuesday amid growing concerns about the health of the eurozone economies.

“The euro is still on a downward trend,” Takuma Kurosawa, treasurer at HSBC, told Dow Jones Newswires. “Currency players are still factoring in how bad the European economy will be.”

The dollar has been buoyed by growing speculation that the European Central Bank could begin cutting interest rates next year to boost the eurozone economy, which shrank by 0.2 percent in the second quarter.

Falling commodity prices and a rise in US industrial output in July gave an additional boost to the US currency last week, dealers said.

Fresh clues on the state of the troubled US property market may come on Tuesday from data on housing starts.

The Bank of Japan started a two-day meeting on interest rates Monday, with traders bracing for a more cautious assessment by the central bank on prospects for Asia’s biggest economy.

With inflation at a decade-high and Japan’s economy in a downturn, the Bank of Japan is expected to leave interest rates on hold at 0.5 percent for now.

The European Central Bank decided to leave its key lending rate at 4.25 percent and the US Federal Reserve kept American interest rates at 2.0 percent earlier this month.

Elsewhere on Monday, the British pound remained pressured by prospects of cuts to British interest rates from their current level of 5.0 percent after further weakness in the housing market.

Sterling hit a two-year low against the dollar on Friday.

In London trade on Monday, the euro changed hands at 1.4741 dollars against 1.4685 dollars late on Friday, at 162.17 yen (162.27), 0.7890 pounds (0.7871) and 1.6149 Swiss francs (1.6099).

The dollar stood at 110.12 yen (110.48) and 1.0964 Swiss francs (1.0961).

The pound was at 1.8662 dollars (1.8651).

On the London Bullion Market, the price of gold was unchanged at 786.50 dollars per ounce.

This article was derived from afp.google.com/article/ALeqM5i3k0hcDvLD9ms2r9mN6ZHSXonO9g