(ADVISORY: Please note that there is reduced FX coverage in
Europe on Monday owing to a public holiday in the UK. Full
European coverage will resume on Tuesday.)
* Broad U.S. dollar rally fed by fall in oil, sterling
* Sterling outlook bleak as UK economy contracts
* Markets await Fed's Bernanke at Jackson Hole Fed
(Changes byline, dateline; previous LONDON, adds quotes,
updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Aug 22 (Reuters) - The U.S. dollar recovered on
Friday from the previous session's sharp losses, buoyed by a
pullback in oil prices, stock market gains, and an ailing pound
after growth data increased chances of a recession in Britain.
Oil lost ground after soaring nearly 5 percent on Thursday.
It last traded below $120 per barrel <CLc1>, down more than one
percent on the day, easing inflation risks and aiding the
dollar.
Further boosting the market's dollar optimism, analysts
said, was the rise in Wall Street futures after comments from
influential investor Warren Buffett saying he has no bets
against the greenback and that U.S. stocks are more attractive
now than a year earlier. For the full story, see
[].
"The dollar is getting a knee-jerk reaction to the fact
that we're getting a bit of a push-up in equities. Oil and gold
have also come off and helped the dollar," said Tom
Fitzpatrick, global head of FX strategy at CitiFX in New York.
"The FX market continues to trade closely with commodities.
Generally, every time you see an oil move, you'll see a dollar
move as well," he added.
In early New York trading, the euro <EUR=> was down 0.7
percent at $1.4810, edging towards a six-month low hit earlier
this week at $1.4631, according to Reuters data.
Losses in sterling also helped the dollar regain its
footing, falling sharply after the UK economy posted its
weakest performance since the recession of the early 1990s.
Britain's second quarter gross domestic product (GDP) showed
the economy ground to a halt in the three months to June,
falling from a preliminary estimate of 0.2 percent rise.
The poor UK growth numbers added to an overall bleak
picture of a slowing European economy after recent data showing
contraction in euro zone GDP, increasing the possibility of
European Central Bank and Bank of England monetary easing.
Sterling slid 1.2 percent to $1.8562 <GBP=>, while
trade-weighted sterling hit its lowest since late 1996 <=GBP>.
The pound's losses helped fuel a 0.8 percent gain in the
dollar versus a basket of major currencies <.DXY> to 76.627,
not far from its 2008 peak at 77.413 hit early this week.
The dollar also rose 1.3 percent to 109.85 yen <JPY=>,
recovering from a slide to 108.12 yen on Thursday and inching
back towards an eight-month high of 110.66 yen touched a week
ago.
FURTHER DOLLAR GAINS FAVOURED
Markets are awaiting a speech by Federal Reserve Chairman
Ben Bernanke, who will talk about financial stability at an
annual symposium in Jackson Hole, Wyoming later in the day, for
more clues into the U.S. central bank's view on the economy and
its interest rate outlook
"We have little doubt that Bernanke will continue to travel
a pragmatic middle ground that acknowledges the heightened
downside risks to economic growth and the considerable stress
in financial markets on the one hand, and the upside risks to
inflation on the other," wrote Stephen Malyon, a senior
currency strategist at Scotia Capital in Toronto.
He added that while crude oil prices remain well off their
highs, the latest rebound has pulled them back to the levels
seen when the Federal Open Market Committee met on August 5.
"With the July numbers revealing lingering upside pressure
on core inflation, we do not expect Bernanke to temper his
inflation rhetoric just yet," Malyon said..
Persistent doubts about the health of Fannie Mae <FNM.N>,
Freddie Mac <FRE.N> and investment bank Lehman Brothers <LEH.N>
have also reminded investors about the housing-related troubles
still plaguing the United States. []
But those financial sector fears were not having the same
repercussions in financial markets as they did earlier in the
year, traders said.
The dollar has soared this month as investors dumped
positions they had made betting the global economy would
withstand the U.S. downturn and the credit crisis by selling
the euro, the Australian dollar and commodities.
Analysts said the dollar had been overdue for a reversal of
its sharp gains, but it was still on the road to a medium-term
recovery after a seven-year slide to record lows.
(Additional reporting by Veronica Brown in London; Editing by
Chizu Nomiyama)
