Forex - Dollar loses early vigour amid fears over USA

The dollar lost some of its early vigor amid resurfacing concerns about
the state of the U.S. economy and in particular the country's financial
sector.
The worries rose to the fore when U.S. mortgage giants Freddie
Mac and Fannie Mae had to be thrown a lifeline by the government. On
Friday, government announced after market close that two more mortgage
lenders were to be shut down, with investors fearing there may be more
to come.
Add to that comments from Minneapolis Fed president Gary Stern
suggesting the U.S. credit squeeze is likely to linger for some months
and possibly worsen, and it is not hard to see why the dollar has come
off multi-week highs.
Ashraf Laidi at CMC Markets said that Stern's remarks were
dovish even though he is known to be among the most hawkish members of
the FOMC during the Greenspan days in the late 1990s.
"Stern argued that 2 percent Fed funds rate enable the Fed to
cope with any negative surprises on growth, but do not enable it as well
in dealing with negative surprises on inflation," said Laidi.
At 1546 GMT the euro was trading at $15748 compared to the
day-high of $1.5717 hit at 0758 GMT.
Against this backdrop the euro got off lightly even as a key
sentiment indicator in the region fell sharply.
Earlier today the GfK market research institute said its
consumer climate index for Germany is forecast to sink to 2.1 points in
August, its lowest level since June 2003 and down from 3.6 points in
July. The figure is far lower than the 3.5 point consensus forecast from
a Thomson Financial News poll of economists.
Analysts said the figures indicate rising inflation is hitting
consumers' willingness to spend, deepening the slowdown in the German
economy.
"The good times are definitely over and the German economy is
on a slide to a recession-like scenario," said Carsten Brzeski at ING.
However with no major data due until later in the week, trade
in the major currency pairs remains within the recent ranges, with
analysts seeing little chance of any breakthrough until markets have
more information to get their teeth into.
"The calendar of data releases becomes very interesting later
this week especially with the U.S. GDP, non-farm payrolls and the ISM
index...until then, the market might prefer to stay in a wait-and-see
mode," said Ulrich Leuchtmann at Commerzbank.
Elsewhere, the pound was off lows but remained under pressure
following a a series of gloomy surveys on the UK economy.
Hometrack reported that house prices fell 1.2 percent between
July and June, while the Land Registry reported house prices in England
and Wales fell 1.0 percent between June and May. Added to this was a
report from KPMG reporting that more than half of UK employers expect to
lay off workers in the coming months.
Government figures for England and Wales, released this
morning, showed a worrying 1.0 percent drop between June and May.