Dollar dives as US slump spreads

The Telegraph ^ | 10/19/07 | Ambrose Evans-Pritchard and Joe Moulds

[bruinbirdman]

The dollar has plummeted to all-time lows against both the euro and a basket of global currencies amid growing fears of a disorderly rout as the US property slump spreads to the broader economy.

The greenback dived after the US 'Philly' business index dropped 10.9 to 6.8 in October, with a shock fall in new orders and inventory, raising the chances of further rate cuts by the Federal Reserve this month.

The dollar has reached all-time lows
against the euro

David Page of Investec Securities also noted that sales of toys and games were high due to fears that stocks would not meet Christmas demand following Mattel's toy recalls. Shoppers seem to have shrugged off any impact of the recent market turmoil, prompting economists to speculate that the Bank of England may wait until next year to cut interest rates.

Other data lent support to this view. Bank of England figures showed that growth in the country's broad money supply, which can fuel inflation, cooled in September but stayed high at 12.8pc.

Growth in total lending by banks and building societies, known as M4 lending, appeared entirely unaffected by the credit crisis, rising from 12.3pc to 13.1pc. Vicky Redwood of Capital Economics said: "With inflationary pressures still strong and retail sales figures supporting evidence that the economy grew more strongly in the third quarter than the Monetary Policy Committee expected, interest rates look likely to stay on hold until next year."

The housing market, however, showed signs of cooling. Data from the Council of Mortgage Lenders revealed a stark 12pc decline in mortgage lending over the month, around twice the average fall in August.

Separately, the ONS released data giving a gloomy picture of the state of the public finances, in a fresh blow for new Chancellor Alistair Darling.

Public sector net borrowing, the Government's preferred measure of the public finances, rose to £7.4bn last month, the highest September borrowing on record and above expectations of £6bn.

Howard Archer of Global Insight said: "With slowing growth, a softening housing market and substantially lower City bonuses all likely to weigh down on tax revenues, the prospects for the public finances look worrying."

[rb22982]

Doubt it.