Saturday February 23, 2008 - 01:48:48 GMT
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Reuters - www.reuters.com
FOREX NEWS - Dollar falls broadly; stocks recovery curbs losses
By Lucia Mutikani
NEW YORK, Feb 22 (Reuters) - The dollar fell broadly on Friday, hitting a three-week low against the euro, amid mounting fears of a U.S. recession and more credit-related losses.
But a CNBC television report that a bailout for bond insurer Ambac Financial Group (ABK.N: Quote, Profile, Research) was imminent saw U.S. stocks stage a late rally, helping the greenback fight back from earlier troughs against the yen.
"The dominant theme on the FX market today was broad dollar weakness, that's what we are seeing," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.
The dollar came under pressure as Thursday's contraction in the Philadelphia Federal Reserve Bank's Mid-Atlantic business activity index stoked recession fears, in contrast to the euro zone's surprising growth in the service sector reported on Friday.
In late New York trade, the euro was up 0.2 percent at $1.4835<EUR=>, after racing to a three-week peak of $1.4861 on the back of the better-than-expected euro zone services sector data.
The euro zone services PMI index rose to 52.3 in February from 50.6 the previous month, a survey showed on Friday. The data dampened expectations of near-term rate cuts from the European Central Bank.
The dollar last traded down 0.1 percent at 107.18 yen <JPY=>, after sliding to a session low 106.74 yen. Against the Swiss franc, it dropped 0.4 percent 1.0848 <CHF=>.
A late rally on the U.S. stock market caused the euro to erase earlier losses versus the yen. It last traded flat at 158.49 yen <EURJPY=> after touching an intraday low of 158.16 yen.
Analysts reckoned the dollar would remain vulnerable next week, with key housing and confidence reports due for release.
They said the data would most likely confirm that the world's largest economy was sharply slowing down and back expectations of another 50 basis points reduction in the fed funds rate target next month.
"We may see weak U.S. data weighing on the U.S. dollar more than previously because we are getting closer to the Fed meeting and fresh from the Fed's (revised growth) projections," said Ashraf Laidi, chief FX strategist at CMC Markets in New York. "We are looking for further gains in the euro and we could see 1.49."
In contrast, rate futures markets are fully pricing in a half percentage point cut at the Federal Reserve's next meeting in March to 2.50 percent and factor in a small chance of a bigger 75 basis points reduction.
That would add to an unusually aggressive 125 basis points of cuts in January, as the Fed tries to stave off a U.S. recession.
The Canadian dollar, meanwhile, weakened after a domestic retail sales report missed expectations and supported the case for more rate cuts from the Bank of Canada. In late trade, the U.S. dollar was up 0.1 percent against at C$1.0121 <CAD=>. (Additional reporting by Gertrude Chavez-Dreyfuss; editing by Leslie Adler)
Â© Reuters 2008 All rights reserved
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