Storm Harvey helps sweep dollar to 16-month lows

LONDON — An already weak dollar dropped to 16-month lows against a basket of major currencies on Monday, as flooding caused by Tropical Storm Harvey paralysed the United States' fourth-biggest city and drove worries about a hit to the economy. 

The greenback had already fallen sharply on Friday, after US Federal Reserve Janet Yellen failed to mention monetary policy at the closely watched Jackson Hole meeting in Wyoming. Investors saw this as evidence that Yellen was comfortable with their rate hike expectations — currently only one is priced in by the end of next year. 

The euro, meanwhile, climbed to a two-and-a-half year high close to $1.20, extending gains made at the end of last week after European Central Bank (ECB) President Mario Draghi held back from talking down the buoyant currency at the same meeting. 

The dollar index — which measures the US currency against six major rivals with the euro given the heaviest weighting — was down 0.3 per cent by 12:00GMT at 92.501, having earlier fallen to as low as 92.372, its weakest since early May 2016.

"Markets will be closely watching the damage from Harvey and its effect on the US economy," wrote FXPro analysts in a note to clients, pointing out that Hurricane Katrina had in 2005 halved US economic growth in the quarter that followed. 

A public holiday in global foreign exchange capital London kept the market subdued, with most currencies trading in narrow ranges. 

By (12:00GMT), the euro was up just 0.1 per cent at $1.1924 , having touched $1.19665 in Asian trade, its highest since January 2015. It was on track for a sixth straight month of gains against the dollar — its best run in five years. 

"This is about what [Draghi] did not say," said Commerzbank currency strategist Esther Reichelt, in Frankfurt. "He does not seem to be overly concerned with the current euro levels, which is the market's justification to move the euro higher."

The euro was broadly expected to remain firm, at least in the short term, with investor focus on the ECB and whether it announces plans to reduce debt-buying at its September policy meeting next week. 

The greenback slipped 0.1 per cent against the safe-haven Japanese yen to 109.30 yen, clear of the four-month low of 108.605 touched on August 18.

The pound was slightly higher on the day at $1.2916, having briefly touched a 13-day peak of $1.2946.