Monday January 28, 2008 - 12:39:31 GMT
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FOREX NEWS - Stocks sell-off keeps currencies in risk-averse mode
Mon Jan 28, 2008 6:49am EST
(Changes byline, updates prices, adds quotes)
By Toni Vorobyova
LONDON, Jan 28 (Reuters) - The yen was firmer across the
board on Monday as demand for risky trades eased with stocks
once again on the back foot amid persistent worries that a
slowing U.S. economy will hit corporate profits.
Currency investors have been using stocks as a guide for how
much risk to take, favouring risky carry trades -- in which the
low-yielding yen is used as a source of cheap funds to buy
higher-yielding currencies -- whenever equities rally and
reversing those trades when they fall.
European stocks fell around 2 percent after a drop of nearly
4 percent on Tokyo's bourse, and Wall Street futures also
signalled a lower open.
"The feeling is of a moderate risk aversion, really
currencies are taking their cues from the equity market," said
Adam Cole, global head of FX currency strategy at RBC Capital
Markets.
"The mood's certainly negative on the U.S. economy and U.S.
equity market," he added, noting that this was also
dollar-negative as long as it did not spark a rush of
repatriations from U.S. investors as in previous recessions.
The dollar fell 0.25 percent against a basket of major
currencies to 75.789 .DXY. The euro rose 0.3 percent to
$1.4712 <EUR=>.
The dollar also eased to 106.41 yen <JPY=>, bringing its
losses since the start of January to nearly 4.5 percent --
likely heading for its worst monthly performance in over 4
years.
FED FOCUS
Markets are betting that the Federal Reserve will cut
interest rates by as much as 50 basis points after the two-day
policy meeting ending on Wednesday, following last week's hefty
75-basis-point cut in a rare move between scheduled meetings.
"Assuming these expectations do not shift much, a 50 bps --
or larger -- Fed ease, especially if coupled with a still-dovish
statement, should give at least a short-term lift to risk
appetite, and in turn, carry trades," JP Morgan said in a
research note.
All eyes will also be on a batch of data this week for clues
on the U.S. economy's health, including December new home sales
figures at 1500 GMT and the non-farm payrolls report on Friday.
Events later in the day feature results from corporate
heavyweights including American Express and McDonald's, as well
as speeches by a few ECB officials and President George W.
Bush's State of the Union address.
Bush and congressional leaders have been trying to thrash
out a $150 billion stimulus package to help to limit the
economy's downturn this year from a reeling housing market.
In television interviews at the weekend, U.S. Treasury
Secretary Henry Paulson said the Senate should quickly approve
the stimulus proposal to boost the sagging economy.
(Editing by Stephen Nisbet)
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