Wednesday January 23, 2008 - 21:54:23 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen slips, erasing gains as U.S. stocks rebound
(Recasts throughout, updates prices)
By Vivianne Rodrigues
NEW YORK, Jan 23 (Reuters) - The yen reversed earlier gains
and fell in late trading on Wednesday as U.S. stocks rallied at
the close, boosting demand for riskier assets.
Earlier, declining stocks in the United States and Europe
encouraged investors to reduce exposure to riskier assets
despite the Federal Reserve's hefty interest rate cut on
Moves in stock markets are regarded as a barometer of
investors' appetite for carry trades, which involve borrowing
in the yen or other low-yielding currencies such as the Swiss
franc, to buy higher-yielding assets.
"The yen is trading inversely to stocks," said David
Gilmore, partner at FX Analytics in Essex, Connecticut.
The Fed's 75-basis-point reduction in its benchmark
overnight lending rate, to 3.5 percent, did little to calm
investors' fears of a U.S. recession and its impact on the
global economy, analysts said.
Investors continued to fret about a possible recession in
the world's largest economy and grumble that European central
banks have given no indication they intend to follow the Fed's
In earlier trading, the dollar dove to 104.98 yen, its
lowest since May 2005, according to Reuters data. It erased
those losses and was last traded 0.1 percent higher at 106.60
Still, the dollar slipped 0.5 percent against the Swiss
franc to 1.0891 <CHF=>.
Currencies such as the yen and Swiss franc tend to attract
flows during periods of uncertainty as the low interest rates
reflect the capital surplus of their respective countries.
"Despite the Fed's move yesterday there is still a great
desire to reduce risk and the way that works in foreign
currency markets is to buy low-yielding currencies," said Marc
Chandler, senior currency strategist at Brown Brothers Harriman
in New York. The Fed is widely expected to cut rates again at
its next policy meeting on Jan. 29-30.
Analysts said investors were also disappointed that other
central banks, particularly the European Central Bank, had not
followed the Fed's emergency interest rate cut.
Euro zone interest rate futures reflect expectations of
around 75 basis points of ECB easing this year from the current
4 percent, with the first cut expected before June. Futures at
the start of January had pointed to the ECB being on hold.
New Zealand's central bank left interest rates unchanged at
8.25 percent as expected. The kiwi last traded up 0.4 percent
per U.S. dollar at $0.7669 <NZD=>.
(Additional reporting by Lucia Mutikani in New York; Editing
by James Dalgleish)
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