Dollar Shrugs Off Oil and Gold

Fri Aug 20, 2004
By Jamie McGeever

NEW YORK (Reuters) - The dollar strengthened against most major currencies on Friday as dealers shrugged off soaring gold and oil prices and bought the currency largely on technical and positioning grounds.

In a session bereft of major U.S. economic data, currency traders closely watched other asset markets, including oil and gold.

Trading appeared to be largely unaffected by U.S. oil futures hitting a new peak above $49 a barrel, driven by escalating violence in Iraq and demand from China and India, or gold's jump to multi-month highs above $414 an ounce.

Dealers unwound short dollar positions built up this week. The euro's repeated failure to break through resistance and options-related selling around $1.2370-80 helped trigger the single currency's slide.

"This is technical (trading) and position-squaring here in New York," said Patrick Brodie, chief dealer at Sumitomo Mitsui Banking Corp.

Marvin Barth, global currency strategist at Citibank in New York, agreed that the dollar was supported by position adjustments more than anything else. "I don't think there's anything fundamental going on here," he said.

The euro (EUR=: Quote, Profile, Research) fell 0.4 percent to $1.2313, having dipped as low as $1.2279 earlier in the session. Against the yen, it was down 0.6 percent at 134.41 yen (EURJPY=: Quote, Profile, Research) .

The yen got broad support from better-than-expected Japanese service sector data that raised optimism about the world's second-biggest economy, briefly pushing the dollar just under 109.00 yen (JPY=: Quote, Profile, Research) .

By late afternoon in New York the dollar was a touch weaker at 109.25 yen. It was also up 0.6 percent against the Swiss franc (CHF=: Quote, Profile, Research) at 1.2500 francs, while sterling was off 0.6 percent at $1.8170 (GBP=: Quote, Profile, Research) .

With no data to trade on Friday, currency markets kept close tabs on the seemingly unstoppable surge in oil prices.

"The yen is one of the candidates that should weaken off during really high oil prices," said Jason Daw, a senior G10 foreign exchange strategist with Merrill Lynch in New York. But the currency's resiliency may reflect that "people just think it (high oil) is a temporary phenomenon," he said.

"To buy oil right now, at these high prices, people have to buy dollars," said Citibank's Barth, noting that high oil prices are not having a particularly detrimental effect on the dollar. "We're seeing little to no evidence that these petrodollars are turning into other currencies, and this has to be dollar-positive."

Looking ahead to next week, the main points of focus for traders will be July durable goods orders on Wednesday and preliminary second-quarter growth domestic product figures and final University of Michigan sentiment index for August on Friday.

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