Dollar rebounds, but bad economics to blame for slow recovery

The dollar has hit a six-month high against the euro and its highest in almost two years against the pound.

The US currency has bounced back from record lows against euro on fears that European growth may slow sharply.

The UK is also struggling with high inflation and faltering growth, causing a slide in sterling.

The European currency hit a six-month low of $1.4812, while the pound fell to $1.8997 having hit its lowest since November 2006 at $1.8967.

The US economy is still suffering from the credit crisis but analysts say the deteriorating outlook elsewhere in the world has buoyed the currency's standing.

The falling price of commodities, that are priced in dollars, has also helped the US currency. Investors had bought oil and gold to protect against dollar weakness but they are now unwinding those positions.

The euro has been further undermined by military conflict in Georgia that could disrupt European markets.

However, analysts cautioned that the dollar's rally might not be sustainable.

"The scope for a much faster recovery in the dollar is still limited by relatively poor economic fundamentals in the US," said Julian Jessop, chief international economist at Capital Economics."