US dollar strengthens

The Straits Times
Dec 2, 2008 | 7:42 AM
US dollar strengthens

NEW YORK - THE dollar mostly rose on Monday as a flurry of dour economic reports prompted investors to buy up the buck as they exited stocks and riskier overseas currencies.

The 15-nation euro fell to US$1.2672 (S$1.934) in late New York trading from US$1.2708 late on Friday. The British pound plunged more than 5 cents to US$1.4910 from US$1.5412.

Stocks tanked in the U.S. as manufacturing and construction data piled on to concerns about the holiday shopping season. The Dow sank about 680 points in Monday trading, wiping out more than half of last week's big gains.

The dollar has tended to benefit this fall as stocks drop, prompting investors to seek out safety.

The Institute for Supply Management, a trade group, said its index of manufacturing activity fell to a 26-year low of 36.2 in November from 38.9 in October.

A reading below 50 indicates the sector is contracting. The Commerce Department reported that construction spending slid by 1.2 per cent in October, more than had been expected.

Meanwhile, reports out of Europe and Britain showed the toll the global crisis was taking on their economies.

A leading housing report from Hometrack in Britain said home prices fell to their lowest level in nearly three years in November, while a survey of manufacturing activity showed a record pace of contraction in November to its lowest reading since January 1992, when the survey began.

In the euro zone, retail sales in Germany fell 1.5 per cent in October from the year before, a signal of consumers' reluctance to spend.

On Thursday, analysts expect the European Central Bank and the Bank of England to cut interest rates. Both banks cut their benchmark rates last month to 3 per cent and 3.25 per cent, respectively.

Cutting interest rates can prompt economic growth, but it also can undermine a currency as investors transfer funds in search of better returns.

The dollar also dropped to 93.40 (S$1.54) Japanese yen from 95.65 yen late on Friday and slipped to 1.2028 Swiss francs (S$1.53) from 1.2133. The greenback was unchanged at C$1.2386 (S$1.52). -- AP