Friday March 7, 2008 - 12:02:45 GMT
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Reuters - www.reuters.com
FOREX NEWS -Ailing dlr sinks to new record lows, Fed cuts seen
By Simon Falush
LONDON, March 7 (Reuters) - The dollar sunk to new record lows versus the euro and Swiss franc and fell to a three-year low against the yen as U.S. recession fears and expected hefty Fed rate cuts led investors to bail out of the currency.
While U.S. rates are seen as falling by at least 75 basis points this month FEDWATCH, European Central Bank president Jean-Claude Trichet said there was no discussion of cutting rates from 4 percent at a rate setting meeting on Thursday.
He also declined to refer to the euro's rise as "brutal", simply saying that excessive volatility was bad for economic growth and that U.S. had a strong dollar policy.
"There's broad dollar weakness and Trichet's language was not threatening enough for dollar bears to think that there might be intervention from the ECB, giving the green light to sell the dollar," said Audrey Childe-Freeman, European economist at CIBC World Markets.
The euro rose to $1.5429 according to Reuters data, the highest level since its launch in 1999 and bringing its gains since the start of the year to over 5 percent <EUR=>.
The dollar fell to an all-time low against a trade-weighted basket of major currencies at 72.666 .DXY and against the Swiss franc hit a low of 1.0185 francs <CHF=>. It has now lost over 10 percent versus the low-yielding, safe haven Swiss currency since the start of the year. It also set a 3-year low at 101.82 yen <JPY=>.
The sell-off in the dollar since early February has been characterised by sharp moves as uncertainty on the outlook for the global economy has made investors jittery.
Implied volatility in 1-week euro/dollar hit its highest since late 2004 <EURSWO=> at close to 12 percent, reflecting increased demand for options protection against big currency moves.
A weak reading from the keenly-watched U.S. non-farm payrolls data at 1330 GMT could further weaken the dollar.
The data is forecast to show a gain of 25,000 jobs in February, although forecasts ranged from a loss of 110,000 jobs to a gain of 100,000 [ID:nN06208518].
"Markets are braced for a rather bad employment number today. These ongoing recessionary worries are hitting risk appetite across the board...it's just a question of buy yen, buy Swiss and see how low the dollar can fall," said Geoffrey Yu, currency strategist at UBS in Zurich said.
Data on Thursday showing that U.S. home foreclosures rose to record highs in the fourth quarter gave investors more reasons to sell the dollar.
Worries about the financial system's health intensified as mortgage lender Thornburg Mortgage and bond fund Carlyle failed to meet margin calls and received default notices.
Traders cited widespread talk of investment banks clamping down on the credit they provide hedge funds and talk that some portfolio managers have started to frantically sell high-quality U.S. mortgage bonds to raise funds. (Editing by Ian Jones)
Â© Reuters 2008 All rights reserved
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