Forex - Dollar remains on defensive despite S&P's subprime miscalculation

Forex - Dollar remains on defensive despite S&P's subprime miscalculation

	Published : Fri, 13 Jul 2007 09:44 By : Agencies Print this Story

LONDON (Thomson Financial) - The dollar is back on the defensive again even though a leading credit ratings agency conceded it overestimated by billions of dollars the value of bonds backed by subprime mortgages that it was placing on a negative watch.

Tuesday's decision by Standard & Poor's to place 12 bln usd worth of US subprime bonds on review for a possible downgrade prompted frenzied selling of the dollar as it reignited concerns about the outlook for the world's largest economy. Last night, S&P put the total value of those bonds at only 7.35 bln.

S&P gave no explanation for this miscalculation, which proved the main catalyst to the euro's break above 1.37 usd. Since then the single currency has pushed up to an all-time high of 1.3797 usd, while the pound has moved to a 26-year high of 2.0365 usd.

'The dollar, nonetheless, continues to trade on backfoot against currencies when rates are on the rise,' said Ian Stannard, currency strategist at BNP Paribas.

Yield differentials between the US and others have worked against the dollar and any impact on the economy from housing will likely exacerbate that negative for the US currency.

While the Fed is likely to keep its benchmark Fed funds rate unchanged at 5.25 pct over the coming months, the European Central Bank is poised to lift its refi rate to 4.25 pct in September while the Bank of England is set to raise its key repo rate once again to 6.00 pct in early autumn.

Today's focus of attention will be on US retail sales data for June.

Analysts polled by Thomson Financial News expect monthly sales to have risen by a modest 0.1 pct following May's very strong 1.4 pct increase.

'There's mounting speculation that this afternoon's US retail sales figures could yet initiate a further run of dollar selling before we get to the weekend break,' said Wayne Roworth, senior forex trader at CMC Markets.

'Elsewhere there's very little at all on the economic calendars so direction through the earlier part of the day is likely to be dictated by some posturing and in addition to this the temptation to lock in some gains before the close, but otherwise it's going to be a case of sitting it out until the data is released from across the Atlantic,' he added.

In addition to the retail sales number, the University of Michigan publishes its preliminary estimate for consumer sentiment in July.

London 0918 BST Sydney 2.13 pm (0413 GMT)

US dollar

yen 122.29 down from 122.46

sfr 1.2030 down from 1.2035

Euro

usd 1.3784 unchanged 1.3784

yen 168.63 down from 168.77

sfr 1.6585 down from 1.6589

stg 0.6784 down from 0.6793

Sterling

usd 2.0312 up from 2.0291

yen 248.45 up from 248.44

sfr 2.4438 up from 2.4422

Australian dollar

usd 0.8687 up from 0.8669

stg 0.4275 up from 0.4273

yen 106.24 up from 106.14

pan.pylas@thomson.com

pp/jag

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