Dollar falls against stronger greenback

Thu Jun 12, 2008 9:49am EDT
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By John McCrank

TORONTO (Reuters) - Canada's dollar slumped 0.4 percent against its American counterpart on Thursday, as investors bet rising inflation would lead to higher U.S. interest rates, making the greenback more attractive.

Domestic bond prices, with no domestic economic data to influence direction, fell on strong overseas equities markets and a strong reading on a U.S. retail sales report.

At 9:22 a.m. (1322 GMT), the Canadian dollar was at C$1.0240 to the U.S. dollar, or 97.66 U.S. cents, down from C$1.0200 to the U.S. dollar, or 98.04 U.S. cents, at Wednesday's close.

The Canadian dollar was stronger against most other major currencies, with the main exception being the greenback.

"Clearly, the U.S. dollar has had a very strong night and the Canadian dollar has been dragged down just by U.S. dollar strength," said Steve Butler, senior currency strategist at Scotia Capital.

Investors bet the U.S. central bank would soon begin raising interest rates to temper inflation, while expectations of rate hikes in Europe were scaled back.

"The continued inflation story that all the members of the Fed continue to push has got the rate futures very frothy and people are talking about the potential of getting up to three (U.S. interest rate) hikes before year end," said Butler.

U.S. rate futures show a perceived 76 percent chance that the Federal Reserve will increase U.S. rates as soon as August. That number was at 62 percent at Wednesday's close.   Continued...