Friday January 25, 2008 - 12:11:07 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen falls as confidence edges back, stocks rally
(Changes byline, updates prices, adds quotes)
By Simon Falush
LONDON, Jan 25 (Reuters) - The yen fell broadly on Friday as
a rally in global stocks fuelled appetite for riskier trades,
putting the low-yielding Japanese currency under pressure.
Gains in high-yielding units such as sterling <GBP=> also
underscored improved risk appetite as stocks rose across Europe
and Asia, with Japan's benchmark Nikkei index .N225 surging
over 4 percent in its biggest one-day gain in about six years.
Stock investors were cheered by a U.S. tax stimulus package,
reassuring U.S. jobs data and the prospect of another U.S.
Federal Reserve interest rate cut next week, all tending to ease
fears that the world's biggest economy will slip into recession.
"The yen is weaker today and equities have risen alongside
(an improvement in) global economic sentiment," said Colin
Asher, FX strategist at Nomura.
The Federal Reserve made a surprise move to cut interest
rates by 0.75 percent on Tuesday in a bid to support an economy
heading for a sharp slowdown.
Stock market moves are often regarded as a barometer of risk
appetite, and financial markets have calmed down after swinging
wildly earlier in the week on the Fed's rate cut and escalating
fears of a U.S. recession.
The euro was supported after tough inflation talk by
European Central Bank officials on Thursday cooled speculation
of a possible euro-zone interest rate cut, even as the Fed is
expected to cut rates further.
A survey earlier on Friday showing German consumer morale is
likely to hold steady in February helped to underscore the
hawkish stance that ECB officials have taken. [ID:nL2422929]
At 1123 GMT, the dollar gained 0.5 percent to 107.66 yen
<JPY=>, pulling well away from a 2-1/2-year low of 104.95 yen
hit on Wednesday. The euro was up 0.2 percent against the yen at
Against the dollar, the euro fell 0.3 percent to $1.4715
<EUR=>, taking a breather after hitting one-week highs in the
High yielding sterling <GBPJPY=R> gained 0.5 percent to
212.83 yen, extending a rebound from 21-month lows of near
204.60 yen plumbed earlier in the week.
MORE FED CUTS?
Despite the dollar's recovery against the yen, it is seen
staying on the back foot in the lead-up to next week's scheduled
Fed policy-setting meeting, where markets have priced in the
risk for a further 50 basis point cut in the 3.5 percent federal
funds rate. [FEDWATCH]
"If you look at the course of the week, the additional
stimulus to the economy is significant, but in the medium term
you have to ask if it's enough to prevent a U.S. economic
slowdown," said Nomura's Asher.
U.S. economic weakness remains a serious concern, with a
slumping housing market and tight credit conditions keeping a
stranglehold on growth. Any returning confidence on the market
is very fragile, analyst said.
"Risk aversion is just below the surface as indicated by the
still very high levels in VIX volatility despite the past days'
decline," said Dresdner Kleinwort in a note to clients.
"In the latest update with data through January 23 our
proprietary risk indicator ARPI reached levels, which prevailed
at the beginning of the US recession in 2001."
There is also a raft of crucial economic indicators due next
week including the influential U.S. non-farm payrolls report.
(Editing by David Christian-Edwards)
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