Thursday January 31, 2008 - 11:05:03 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar recovers post-Fed losses as stocks fall
(Corrects level of Fed rates in paragraph 3)
By Toni Vorobyova
LONDON, Jan 31 (Reuters) - The dollar recovered from an
earlier two-month low against a basket of currencies on Thursday
as investor focus switched to troubles in the financial sector
and away from the previous day's hefty U.S. interest rate cut.
Fitch Ratings on Wednesday downgraded the credit ratings for
Financial Guaranty Insurance Company's (FGIC) main bond insurer
unit, stoking worries about possible downgrades for other
companies in the sector, like MBIA and Ambac.
U.S. equity markets -- which had been boosted by the Federal
Reserve's 50 basis points rate cut to 3.00 percent -- reversed
their gains, while the dollar benefited from repatriation flows
as investors ditched risky investments.
"There was the knee jerk reaction you'd expect (to the Fed)
with stock markets rallying, and risky assets rallying and the
dollar under pressure. But the U.S. (stock) markets didn't hold
onto their gains and a lot of the move's reversed," said Martin
McMahon, FX strategist at Credit Suisse in Zurich.
"There's some more bad news on monolines which is spooking
investor sentiment on the general financial sector... The
dollar's been gaining in the past couple of weeks when stock
markets are losing out as a kind of defensive play."
By 0826 GMT the dollar was up a third of a percent against a
basket of major currencies at 75.272, bouncing up from an
earlier two-month low of 74.972 .DXY.
The euro rose as high as $1.4914 in the aftermath of the Fed
cut <EUR=>, but ran into tough resistance around that level,
prompting a retreat back down to around $1.4850 <EUR=>.
The dollar hit a record low of 1.0798 Swiss francs <CHF=>
before reversing the move in early European trade.
Stock moves have been a major driver for currencies, as
investors see share markets as a barometer for risk.
Overall weakness in share prices has prompted market
participants to unwind risky positions such as carry trades, in
which the low-yielding yen and Swiss franc are used to finance
purchases of higher-yielding assets elsewhere.
Highest yielders like the Australian <AUD=> and New Zealand
<NZD=> dollars weakened against the U.S. currency and the yen.
Japan's Mizuho Financial Group said its subprime losses to
end-December amounted to 345 billion yen. The financial sector
will remain in focus next week, as the 2007 earnings reporting
season kicks off amongst major European banks.
NEXT FOCUS - PAYROLLS
The Fed's cut on Wednesday follows on from a 75 basis point
inter meeting move last week, bringing the monetary easing
administered since September to 225 basis points.
That leaves U.S. rates the lowest among developed countries
except Japan and Switzerland, and the Fed warned more cuts may
be needed to shore up the weakening U.S. economy.
A Reuters poll showed 15 out of 16 primary dealers on Wall
Street surveyed after Wednesday's rate cut expect the central
bank to trim rates again at its next meeting in March. [FED/R]
However dealers were careful about selling the U.S. currency
too aggressively ahead of the main monthly employment report on
Data on Wednesday showed U.S. private employers added more
jobs than expected in January, prompting some analysts to raise
their forecasts for the official non-farm payrolls report.
Thursday features the release of December personal
consumption expenditure figures -- the Fed's favourite inflation
measure -- as well as weekly jobless claims, both at 1330 GMT.
"In light of the stronger than expected ADP report on
Wednesday and positive details in Tuesday's (consumer)
confidence report that suggest labour markets seem to be holding
up better than expected, claims will be important in confirming
this view," JP Morgan said in a research note.
"Nonetheless, these reports remain a wildcard as job growth
tends to gap lower rather than trend during recessions."
Economists expect the U.S. economy to have added 63,000 jobs
in January after creating only 18,000 jobs in December. [ECI/US]
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