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Dollar slumps vs European currencies in US trade

NEW YORK: The dollar slumped broadly against European currencies on Thursday, with the surging British pound leading the pack on its way to a three-month high against the US currency.

Sterling bolted as high as $1.6569, a level not seen since October 27, before settling at $1.6541, more than a full cent above its Wednesday New York close.

Analysts said the British pound had been underpinned by growing expectations for higher U.K. interest rates, particularly after stronger-than-expected British producer price data overnight.

"The Bank of England (BoE) ...(is) raising interest rates in a preemptive way, in appropriate amounts, and that is in relatively stark contrast to the view of the ECB (European Central Bank)," said Jim McCormick, currency strategist at J.P. Morgan.

The BoE hiked its key repo rate by 25 basis points to 5.75 percent last week.

Sterling's gains helped lift Europe's single currency above $1.0180, more than half a cent higher against the dollar than late Wednesday's level. It was the euro's highest level of the week after languishing at the bottom of this week's range below $1.01.

The euro dropped back slightly to close at $1.0172, recovering from heavy selling pressure overnight after the key German Ifo business survey posted a gain for the month but came in below rumoured projections for a stronger reading.

The euro dipped to a record low against the pound for the fifth consecutive day just above 61 pence, but recovered while also finding its footing against the dollar.

"The euro tried to break below $1.0070 but failed, so the momentum started to build to the upside," said Charles Spratt, foreign exchange manager at Brown Brothers Harriman.

"There was a lot of profit-taking in euro/sterling and euro/yen began to gain as well. People started taking back a lot of short euro positions," triggering stops, Spratt said.

He added that activity was thinner than usual as snow flurries enveloped New York and traders looked to a weekend summit of Group of Seven nations for direction.

Dealers said a third straight day of declines by blue-chip US stocks also weighed on the dollar, with the Dow Jones indistrial average losing 1.20 percent. The technology-heavy Nasdaq index, however, closed at a record 4,189.43.

The dollar also slumped 0.68 percent against the Swiss franc, closing at 1.5830 francs per dollar, after earlier matching Monday's 10-year high of 1.6028.

The pair began to move after Swiss National Bank Vice Chairman Jean-Pierre Roth said the SNB is not concerned by the Swiss franc's decline, and that the currency could firm with some tightening of monetary policy.

Shortly after, SNB Chairman Hans Meyer said the central bank would allow interest rates to fluctuate in a band and allow the market to fine-tune exact levels.

Earlier, the dollar was unfazed when the government reported the US November trade gap widened to a record $26.50 billion versus a revised $25.56 billion in October, exceeding market expectations.

Meanwhile, the dollar closed near 105.30 yen, nearly unchanged from Wednesday.

All eyes were on whether G7 finance ministers scheduled to meet this weekend would repeat the unusually specific remark about the yen the G7 made after a September meeting that it shared Japan's concerns about a higher yen.

Concerns lingered the G7 might release a dollar/yen supportive statement at the end of their meeting this weekend.-Reuters