Friday January 18, 2008 - 12:19:25 GMT
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Reuters - www.reuters.com
FOREX NEW-Yen falls as Bush plan lifts dollar
(Changes byline, updates prices, adds quotes)
By Simon Falush
LONDON, Jan 18 (Reuters) - The yen fell against the dollar
and euro on Friday after rising Asian and European equities
calmed markets, prompting investors to edge back into relatively
risky carry trades.
The yen <JPY=> fell in tandem with a rally in Asian shares
and European shares were also in positive territory as investors
took comfort from a financial package mooted by U.S. President
George W. Bush aimed at cushioning the economy from a downturn.
In carry trades, market players use low-yielding currencies
such as the yen to finance purchases of assets offering higher
returns. Those trades are more attractive when stock markets
rise, supporting investor risk appetite.
"There was a dollar bounce from the Bush stimulus package,
Asian equities rallied and in the near term this should help the
dollar," said Colin Asher, currency strategist at Nomura.
However he noted the longer term outlook for the U.S.
economy remains bleak.
"The flip side of this is that the run up in data has been
shocking, I can't remember the last time the data has been this
bad and the continued problems in banks mean that in the medium
term the U.S. economy will continue to struggle."
The dollar rose 0.6 percent to 107.48 yen. The euro was up
0.4 percent against the yen at 157.41 yen <EURJPY=>.
The euro <EUR=> was steady on the day at $1.4649 by 1152
GMT, well off its all-time high just below $1.50 set in November
as expectations increased that the European Central Bank may cut
rates this year.
"The market is definitely nervous about any risk of the ECB
signalling that rates have peaked and that's keeping us in
relatively tight ranges," said Adam Cole, global head of
currency strategy at RBC Capital Markets.
Helping lift some of the gloom surrounding the U.S. economy,
Bush's plan is to introduce tax rebates for families and breaks
for businesses that could cost up to $150 billion.
Federal Reserve Chairman Ben Bernanke, in testimony before
the House of Representatives' Budget Committee on Thursday, also
backed the idea that the struggling economy needed rescue.
Bernanke had reiterated a bleak assessment of the U.S.
economy that he gave last week, which investors saw as a signal
that the U.S. central bank was willing to cut the benchmark
federal funds rate aggressively from the current 4.25 percent
Interest rate futures have already fully priced in a
half-percentage point cut from the Fed at its regular policy
meeting on Jan. 29-30, and saw a 50-50 chance of an even broader
75 basis point cut.
Markets also turned more bearish on the UK economy as weak
retail data figures prompted investors to price in a higher
probability of imminent rate cuts and sell the pound <GBP=>.
"More people are now starting to price in the possibility of
a 50 basis point cut at the February MPC meeting," said Asher at
Nomura, adding that he did not think this was likely.
(Editing by Ruth Pitchford)
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