FOREX-Dollar rises as euro tumbles to near 1-year bottom

Mon Aug 25, 2014 3:23pm EDT

Related Topics

* Dollar index extends gains, approaches one-year peak

* Draghi, data drag down euro

* Euro at 19-month low vs Swiss franc (Adds late New York prices, quotes)

By Michael Connor

NEW YORK, Aug 25 (Reuters) - The dollar rose to its highest level against the euro in nearly a year on Monday as weak German economic data and comments by European Central Bank chief Mario Draghi encouraged bets on looser euro zone monetary policies.

Lifted by widening speculation the Federal Reserve was getting closer to hiking interest rates, the U.S. dollar index was up 0.25 percent in late New York trading after touching a 2014 high of 82.588.

The index, which values the greenback against a basket of a half dozen major currencies, was last at these levels in September 2013.

"The (dollar) is strong, but most importantly the (euro) is weak, having dropped to a fresh 11-month low on President Draghi's recognition that inflation expectations have fallen," said Scotia Capital strategist Camilla Sutton in Toronto.

Economic prospects for Europe pale in comparison to America, which promises better growth and higher interest rates for global investors, according to John Rutledge, chief investment strategist at Safanad investment group in New York.

"The euro doesn't look very good against the dollar, especially as the U.S. economy's restrained growth continues," Rutledge said.

Wall Street rallied, following equity gains in Europe and declines in euro zone interest rates. America's Standard & Poor's 500 index of top U.S. companies topped 2,000 for the first time.

Before currency trading began in New York, Germany's Ifo business climate index, based on a monthly survey of some 7,000 companies, fell to 106.3 from 108, undershooting a Reuters consensus forecast of 107.

As conflict between Russia and Ukraine took its toll on Europe's biggest economy, the data added to expectations that the ECB may have to ease policy sooner rather than later.

The euro skidded against the dollar to $1.3184 after the Ifo survey was released, its lowest since September 2013. It was last trading at $1.3196, down about 0.4 percent on the day.

The euro also touched a 19-month low against the Swiss franc on the first day of trading after Draghi's speech. The currency shared by 18 countries last stood at 1.2072 versus the franc after touching a low of 1.208 last seen in January 2013.

In stronger language than he has used in the past, ECB head Draghi said on Friday the central bank was prepared to respond with all its "available" tools should inflation drop further.

The ECB holds its next policy review on Sept. 4.

"The FX market has interpreted Draghi's statement as meaning that broad-based asset purchases, or quantitative easing, has now become more likely," said Lutz Karpowitz, currency strategist at Commerzbank. (Reporting by Michael Connor in New York; Editing by Andrea Ricci)

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