FOREX NEWS-Dollar hits record low vs Swissie on recession fears
Wed Jan 16, 2008 6:47am EST
(Changes byline, adds quotes, updates prices)
By Toni Vorobyova
LONDON, Jan 16 (Reuters) - The dollar hit a 2-1/2 year low
against the yen and a record trough versus the Swiss franc on
Wednesday, as weak data led to growing fears of a U.S. recession
and expectations of hefty interest rate cuts.
A dismal reading of December retail sales on Tuesday fuelled
market expectations that the Federal Reserve is set to cut rates
by as much as 75 basis points this month.
Worries about a U.S. recession weighed on global equity
markets, further dampening risk appetite. The MSCI world equity
index .MIWD00000PUS has lost nearly 7 percent so far this year
-- on track for its worst monthly performance in half a decade.
Currency investors have become less willing to hold
relatively risky carry trades where cheap borrowing in
low-yielders like the yen or Swiss franc funds higher return
"All currencies are amazingly respondent to changes in risk
appetite right now," said Johan Javeus, FX strategist SEB
"There is a lot of nervousness about the general outlook for
global macro ... Stock markets seem to be almost pricing in a
recession scenario for the U.S., and it's also on most
economists' radars even if they haven't taken it into their
The dollar fell to 105.93 yen, the lowest since May 2005
<JPY=>. It also slipped to an all-time low of 1.0839 Swiss
The euro slid 0.6 percent to 157.09 yen <EURJPY=>, a
four-month low. It also eased against the dollar, to $1.4770
<EUR=> -- about two cents below November's record highs.
Worries about a global slowdown hit oil and commodity
prices, dragging down the currencies of producing countries.
The Canadian dollar slid to a 4-month low versus the
greenback <CAD=>, while the Norwegian crown fell more than one
MORE BAD NEWS TO COME?
Fed Chairman Ben Bernanke's comments last week that the
central bank was willing to take "substantive additional action"
cemented expectations of a half point cut in the Fed's benchmark
interest rate from 4.25 percent at its scheduled meeting on Jan.
Markets are now reflecting a 50-50 chance of three-quarters
of a percentage point worth of cuts by the end of this month
FEDWATCH amid some talk of an inter-meeting move.
Further dollar weakness could be prompted by more weak bank
earnings after Citigroup (C.N: Quote, Profile, Research) reported its first quarterly loss
since its establishment in 1998.
Market players will be watching inflation and industrial
output data later in the day which could further boost
expectations for a hefty Fed rate cut.
"Today's U.S. data argue for a weaker dollar, making a
renewed rise towards $1.49 in euro/dollar a real possibility,"
Commerzbank Corporates & Markets said in a research note.
"Industrial production should have been soft in December,
net capital inflows should have eased in November and the
NAHB (housing market) index should have remained at the record
low. December inflation data should not stand against Fed rate
cut speculation and thus a weaker dollar."
(Editing by Mike Peacock)
Reuters journalists are
subject to the Reuters Editorial Handbook which requires fair presentation and
disclosure of relevant interests.
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