(Recasts to includes Citi results, changes byline, updates prices, adds
By Simon Falush
LONDON, Jan 15 (Reuters) - The dollar recovered from a seven-week low against
the yen on Tuesday after Citi announced smaller than expected write-downs,
slightly easing concerns about the health of the U.S. economy.
Citi announced write-downs of $18.1 billion in the fourth quarter, slightly
below press reports that had suggested write-downs of as much as $20
The fact that the news was not as bad as some had feared led investors to
pare back short dollar positions and move out of the low-yielding, safe-haven
yen. However, the reaction was relatively muted, with the dollar still down on
"It's a case of buy the rumour, sell the fact, 18 yards (billion) of losses
is a big number but the market is happy to have the bad news out of the way,"
said Geoff Kendrick, currency strategist at Westpac.
"(But) the market is still worried that the Fed is going to cut aggressively
... which will lead to more dollar weakness," he added.
Citigroup Inc (C.N: Quote, Profile, Research) is the first big bank
this week to report fourth-quarter earnings and the spotlight will now shift to
others, including JP Morgan on Wednesday. Investors are looking to see how much
the credit crisis is damaging banks' bottom lines and increasing the risk of a
At 1153 GMT the dollar was down 0.3 percent to 107.81 yen <JPY=>,
having recovered some ground after the Citi results. Earlier it had matched
Monday's seven-week low of 107.35 yen.
The euro also slipped to seven-week lows of 159.39 yen <EURJPY=> before
recovering to 160.19 yen.
The euro was steady at $1.4866, staying within sight of the November's
$1.4966 all-time high <EUR=>.
ASYMMETRIC DOLLAR RISKS
Futures markets were reflecting a roughly 50-50 chance of the Fed slashing
interest rates by three-quarters of a percentage point to 3.50 percent by the
end of the month.
The European Central Bank, by contrast, is widely seen as keeping rates
steady for now at 4 percent and a weaker than forecast ZEW German sentiment
indicator did little to change this view [ID:nBAE001039].
U.S. retail data at 1330 GMT also provides further scope for dollar weakness
as a weak number could strengthen the case for aggressive, growth-boosting
interest rate cuts
"The risk is probably asymmetric to the downside in terms of market
reaction," Adam Cole, global head of FX strategy at RBC Capital Markets said.
"If it's a soft number it will be seen as evidence that the slowdown is on the
way, and opening up the way for the Fed to ease as aggressively as it
U.S. retail sales are seen flat on the month in December. Producer prices
data is also due at the same time.
The high-yielding Australian and New Zealand dollars -- which tend to trade
in tandem with risk appetite -- continued to hold up well although the strong
yen and the falling equity markets pointed to an increase in risk aversion.
The Australian dollar hit a fresh two-month peak at US$0.9018 <AUD=>,
helped by a widening yield advantage as expectations grew that Australian
interest rates will rise as early as next month on strong domestic data.
"The stream of positive data have led the market to gradually build on rate
hike expectations for the RBA's February meeting, explaining why the AUD remains
well supported," said BNP Paribas in a note to clients.
Record gold prices <XAU=> also lent the Aussie support.
The New Zealand dollar, meanwhile, stopped just a few ticks short of
six-month highs versus the U.S. currency <NZD=>. (Editing by David