FOREX NEWS-Dollar holds gains on sunnier financial outlook
Wed Apr 2, 2008 4:52am EDT
By Naomi Tajitsu
LONDON, April 2 (Reuters) - The dollar was little changed on Wednesday, holding gains made the previous session as traders saw news that some struggling financial firms had shored up their balance sheets as a sign the worst of the global credit crisis may be over. The U.S. currency followed a climb in share prices around the world after Lehman Brothers Holdings (LEH.N: Quote, Profile, Research) raised $4 billion of capital on Tuesday, quelling some speculation that the investment bank may be in trouble. [nN01215030]
Other banks continue to suffer, with UBS and Deutsche Bank together taking a $23 billion hit on their risky assets, but some investors took this as a sign that struggling firms are beginning to shape up.
This prompted a slight return of risk appetite, leading some traders to buy the dollar. "There's a growing sense of optimism in the market, rightly or wrongly, that the worst of the financial crisis is over ... and that's raising the market's risk appetite," said Adam Cole, global head of forex currency strategy at RBC Capital Markets.
The euro slipped as low as $1.5535 <EUR=> early in the European session, pulling further away from a record high of $1.5905 hit last month. At 0912 GMT, it traded at $1.5610, little changed on the day.
The U.S. currency traded 0.1 percent higher at 101.97 yen <JPY=>, after climbing to a three-week high around 102.30 yen earlier in the day.
The dollar has staged a slight recovery from all-time lows set against the euro in past weeks as investors had been nervous that other financial firms could go the way of Bear Stearns (BSC.N: Quote, Profile, Research), which nearly collapsed last month amid a liquidity crisis.
But a $19 billion writedown by Swiss bank UBS (UBSN.VX: Quote, Profile, Research) reinforced the view that the banks were aggressively scrubbing their books clean of soured investments tied to the weakening U.S. housing market. UBS also said it would raise $15 billion in fresh capital through a rights issue. [nL01419180]
MORE DOLLAR WEAKNESS
Analysts said that the dollar was for the moment supported as fund managers sitting on piles of cash were eager to pick up shares and other assets at the start of the financial second quarter in Europe and the beginning of the fiscal year in Japan.
But some said that dollar demand would be short-lived, given that they expect crucial data on U.S. employment due later in the week will show continuing weakness in the job market, suggesting that the economy is still struggling.
This would further fuel the argument for more interest rate cuts by the Federal Reserve, which has already slashed rates by 300 basis points since autumn to 2.25 percent, its lowest since late 2004.
"The dollar may be getting a boost in the near term as money starts to get around on easing concerns about credit problems, but over the longer term, the focus will again turn to fundamentals, which will weigh on the dollar," said Osamu Takashima, chief forex analyst at Bank of Tokyo-Mitsubishi UFJ.
If employment data due on Friday shows the U.S. economy shed jobs for a third straight month in March, analysts said the dollar could fall back towards record lows against the euro and the Swiss franc.
"There won't be any question about the dollar starting to fall again after the U.S. jobs data, especially when the market is swinging between extreme pessimism and optimism," said Kengo Suzuki, a currency strategist at Shinko Securities in Tokyo.
For clues about the jobs data, investors will look to a report on private sector employment from Automatic Data Processing (ADP) due later in the day.
The ADP report is expected to show that private sector employment shrank by 48,000 jobs in March.
Also on Wednesday, Federal Reserve Chairman Ben Bernanke is scheduled to testify on the economic outlook, though analysts expect him to offer few surprises. (Additional reporting by Tokyo forex team)
Reuters journalists are subject to the Reuters Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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