Tuesday May 6, 2008 - 11:07:20 GMT
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Reuters - www.reuters.com
FOREX-Dollar stumbles as risk appetite falters
(Changes byline, updates quotes, prices)
By Veronica Brown
LONDON, May 6 (Reuters) - The dollar gave up tentative gains
on Tuesday versus the euro, pressured by waning risk appetite as
European equities fell, while the single currency drew support
from slightly stronger than expected service sector data.
Concerns over the impact of rising inflationary pressures
amid soaring food and energy prices was also reflected in crude
oil surging above $120 to a record high CLc1.
Further bad news from the banking sector weighed on risk
appetite as European shares fell, led by Swiss bank UBS
(UBSN.VX: Quote, Profile, Research) after it unveiled large job cuts.
Reinsurer Swiss Re (RUKN.VX: Quote, Profile, Research) announced another round of
credit writedowns and said its first-quarter net profit had
halved, missing analysts' forecasts and sending its shares
Meanwhile, data released earlier showed a pick up in euro
zone service sector growth, with the RBS/NTC services PMI coming
in at 52.0, slightly above a flash reading of 51.8.
"European equity markets have been a bit disappointing.
We're seeing a little bit of an increase in risk aversion with
the investment community rotating back into the cyclically
defensive currencies -- so we've seen the Swiss franc, the yen
and euro all rallying today," JP Morgan G10 strategist Kamal
"Also we had the PMI services numbers that give credence to
the view that the euro zone economy is slowing but holding up
pretty well in the face of downside risks to global economic
growth," he added.
The euro rose 0.1 percent to $1.5511 <EUR=>, holding above a
five-week low hit late last week at $1.5359 as London traders
returned to the market after a bank holiday on Monday.
The dollar was little changed at 104.85 yen <JPY=> and shed
0.3 percent versus the Swiss franc to 1.0492 francs <CHF=>.
Against a basket of six major rival currencies the greenback
was a touch weaker at 73.125 .DXY.
The Australian dollar was little changed at $0.9456 <AUD=>,
having retreated from a two-week high after the Reserve Bank of
Australia held its key cash rate at a 12-year high of 7.25
percent and underlined its concern about demand.
SPOTLIGHT ON ECB
Record high oil prices were seen reinforcing the European
Central Bank's focus on inflation, which President Jean-Claude
Trichet on Monday termed a "significant" risk.
This underlined expectations the central bank would keep
rates at 4 percent when it meets on Thursday.
Analysts also broadly expected the ECB to stick with its
hawkish line on inflation in Trichet's post-meeting briefing on
Thursday, despite a recent run of soft data, but some felt a
psychological change in perceptions was already underway.
Bank of New York Mellon said much of the weakness in the
U.S. economy, stemming from the ongoing credit crisis, has been
factored into market sentiment.
"Moreover, the Federal Reserve has already taken most, if
not all, of the action that the market expects them to take
while the USD is priced at highly competitive levels," the bank
said in a note to clients.
"There is growing feeling that while the ECB is undoubtedly
sticking to the mandate it has been set, there has been a
notable deterioration in the economic data of late out of the
Euro-zone and that the euro is looking increasingly
uncompetitively priced," it added.
(Reporting by Veronica Brown; Editing by Ian Jones)
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