Tuesday April 1, 2008 - 20:53:11 GMT
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Reuters - www.reuters.com
FOREXNEWS-Dollar rallies broadly as credit worries ease
(Recasts, updates prices, adds comment, adds byline)
By Steven C. Johnson
NEW YORK, April 1 (Reuters) - The dollar vaulted higher on
Tuesday after major banks UBS and Lehman Brothers raised a
combined $19 billion to shore up their balance sheets, boosting
hopes that the worst of Wall Street's problems may be over.
UBS (UBSN.VX: Quote, Profile, Research) also wrote down an additional $19 billion in
U.S. real estate and related assets, but the news boosted stock
prices and the dollar on hopes that the Swiss bank has now
purged its books of toxic securities. UBS said it will raise
$15 billion in fresh capital through a rights issue of shares.
"It's a relief rally today," said Steven Butler, head of
currency trading at Scotia Capital in Toronto. "The market is
growing optimistic that the major hurdles we've all been
concerned about are slowly starting to get worked through and
that maybe there's light at the end of the tunnel."
The dollar surged 2.1 percent to 101.93 yen <JPY=> and 2
percent against the Swiss franc to 1.0131 <CHF=>, on track for
its biggest daily gain against the franc in four years.
The euro fell 1.1 percent to $1.5595 <EUR=>, well off a
record high above $1.59 set two weeks ago. Through the first
three months of the year, the euro had gained 8.1 percent
against the U.S. currency.
Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research) sold $4 billion of
convertible preferred securities on Tuesday in an effort to
stave off questions about the fourth-largest U.S. investment
bank's stability. After the near-collapse of Bear Stearns, then
the number five U.S. investment bank, investors are sensitive
to any news on large U.S. financial firms.
The euro also faced headwinds from a decline in German
retail sales and a move by Spain's central bank to slash its
growth forecast, which cast doubt on the view that the European
Central Bank will not cut interest rates any time soon.
The ECB has held benchmark interest rates steady at 4
percent for more than two years to fight inflation. The Federal
Reserve, on the other hand, has slashed rates by 3 percentage
points since September, bringing its federal funds rate to 2.25
percent, the second-lowest in the developed world after Japan.
"We really had a big shift in sentiment over the last day
and a half," said Boris Schlossberg, senior currency strategist
at DailyFX.com. "Euro/dollar has really come down substantially
and the reason is because the European data is starting to
display some signs of serious slowdown."
Analysts also said the UBS writedown and news that Deutsche
Bank also expects to write down $4 billion in the first quarter
left traders betting that future credit problems may be more
likely to emerge outside U.S. borders.
Mark Frey, head of FX trading at Custom House in Victoria,
Canada, said the euro's recent rise to all-time highs means it
has further to fall as the euro zone economic outlook changes.
"I don't think anyone believes we've seen the end of a U.S.
slowdown, but there's been so much bad news already priced into
the dollar, but not so much with the euro," he said.
The yen was also pressure by a Bank of Japan survey that
showed business sentiment among big Japanese manufacturers sank
to a four-year low.
The Australian dollar fell 0.8 percent to US$0.9054 <AUD=>
after the country's central bank kept interest rates at a
12-year high of 7.25 percent and issued a statement that
curtailed expectations of a further rate rise. For more see[ID:nSYD17079].
But some warned the U.S. currency may be in for renewed
selling unless future data starts to paint a sunnier picture of
the U.S. economy.
Earlier on Tuesday, data from the U.S. Institute for Supply
Management showed continued contraction in the manufacturing
sector while prices jumped to their highest since 2005.
"I don't want to sound too pessimistic, but manufacturing
is in recession. The U.S. economy is still likely to experience
negative growth for one or two quarters," said Bank of New York
Mellon senior currency strategist Michael Woolfolk.
If employment data due on Friday shows the U.S. economy
shed jobs for a third straight month in March, he said the
dollar could fall back toward a record low against the euro.
(Additional reporting by Nick Olivari and Lucia Mutikani;
Editing by James Dalgleish)
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