Dollar takes a dive

The strong run that the dollar has been experiencing came to a halt in this weeks trading, with the seven month high seen on Tuesday a notable point and a 4 percent rise since the month began.

Concern over the state of the financial system in the US, plus the continuing rise in oil prices and no sign of let up in the Russian military presence in Georgia are some of the reasons cited for the slow down in the currency market, but others see the effects of traders taking profit from the market following the spectacular advance in value of the dollar.

The dollar appears to benefit from continued belief that the credit crisis is invading worldwide economies far more vehemently than previously believed, and although a high of $1.4628 – against the euro – was seen on Tuesday the dollar fell slightly in the following days.
    

World economy struggles

With the US economy looking in a troubled state, the dollar could rally as the rest of the world joins in the down turn with an adverse effect on the markets outside the US. Industry analysts point to the efforts that the government has made in order to shore up the financial market.

The dollar, one said, was considered now the best option in a market that features many less obvious choices, a trend in thinking that will influence the currency’s standing on the world market in the near future.

Against the euro, the dollar fell 0.9 percent in the last week, with falls of 0.5 percent against that yen and 0.2 percent on the Swiss franc.

Falls were also seen in relation to the Canadian dollar – a loss of 1.2 percent -and the dollar lost 0.4 percent and jus over one percent against the Australian and New Zealand solar respectively.
    

The pound has a problem

A notable exception to the trend came with the performance against the pound, where the dollar closed up by 0.4 percent at $1.8580 as the state of the UK economy reached stagnation over the week.

The move increased the common belief that the Bank of England may be about to lower interest rates in the UK, and was the worst showing of the pound since the recession of 1992.

Analysts commented on the loss of pace in the UK market, surmising that the unexpected events would have taken even the Bank of England by surprise. The expectations over UK interest rates are now apparent, and represent the biggest change in rates that exist on record.

Notably, the pound fell against the yen and euro during the week.