Monday February 4, 2008 - 13:00:11 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen slips as risk appetite perks up; dlr flat
(Changes byline, adds comments and quotes)
By Jamie McGeever
LONDON, Feb 4 (Reuters) - The yen weakened broadly on Monday
as a rally in global equity markets signalled a tentative
recovery in risk appetite, while the dollar steadied against a
basket of major currencies.
After being whipsawed last week on a batch of U.S.
developments -- including another hefty interest rate cut, weak
growth and jobs figures and a surprisingly perky manufacturing
report -- the dollar took a breather on Monday.
The rebound in global equity markets, meanwhile, encouraged
investors to sell low-yielding units like the yen for relatively
higher-yielding currencies like the Australian dollar and euro.
After the flood of news from the United States last week,
investors will turn their attention this week to central bank
policy meetings in Europe and Australia.
The Reserve Bank of Australia is expected to raise interest
rates later this week, while the European Central Bank is
expected to keep rates on hold. The Bank of England will likely
lower borrowing costs, although sterling strengthened broadly on
Tuesday in a snap back from heavy selling on Friday.
"Stocks are performing okay and despite the very soft NFP
(U.S. jobs report last week) there is still some risk appetite
in the market, and that is benefiting the carry trade," said
Niels From, currency strategist at Dresdner Kleinwort in
"The key events this week will be the rates decisions in
Europe. The market is looking at the rhetoric from the ECB ...
and a rate cut from the Bank of England. Will the ECB take a
step back from its very hawkish stance or not?"
At 1200 GMT, the dollar was up 0.3 percent on the day
against the yen at 106.95 yen <JPY=> and the euro was up 0.4
percent against the Japanese currency to 158.45 yen <EURJPY=R>.
The euro <EUR=> edged up 0.1 percent to $1.4817, coming back
down from a two-month high of $1.4956 on Friday and a record
peak of $1.4966 struck in November.
The dollar index, a measure of the greenback's value against
a basket of six major currencies, was unchanged at 75.45 .DXY.
BAD U.S. NEWS PRICED IN?
Stock market moves have been a big driver for currencies, as
investors see equity market performance as a barometer of risk.
Rising stock markets tend to benefit higher-yielding currencies
at the expense of lower-yielding ones.
Japan's Nikkei share average .N225 settled 2.7 percent
higher, while the FTSEurofirst 300 index of top
European shares was up almost 1 percent at midsession.
U.S. stock futures point to a slightly higher open on Wall
The dollar was hit by two hefty interest rate cuts from the
Federal Reserve last month, along with fears of a U.S. recession
and the potential for more U.S. financial firms to suffer credit
losses from problems at bond insurers.
Data last week showed that the economy expanded at a mere
0.6 percent in the fourth quarter, and that jobs were shed in
December for the first time in over four years.
But some investors argue that the grim news on the United
States has now been factored in -- Fed funds futures expect at
least another 75 basis points of Fed rate cuts this year to
fight off recession.
The focus, therefore, is switching to other economies, the
prospect of economic spillover and the implications for rates
relative to the dollar going forward.
"In our view, it is very likely that U.S. interest rates
will surprise to the upside relative to both ECB and BoE rates
over the coming months - either through more easing by the
European central banks than is priced in or, if U.S. prospects
brighten, through higher U.S. interest rates than currently
expected," wrote Barclays Capital strategists in a note to
clients on Monday.
(Editing by Stephen Nisbet)
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