Monday May 12, 2008 - 11:57:59 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dlr up on slightly better risk demand, Fed view
(Changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, May 12 (Reuters) - The dollar rose a full percent
against the yen on Monday and approached a two-month high versus
a basket of currencies, boosted by a slight rise in risk demand
and growing speculation that U.S. interest cuts may be ending.
Weak economic data suggesting that Australia and New Zealand
may be heading for rate cuts initially pushed down the high
yielding currencies of both countries, as lower borrowing costs
would trim their rate advantage against other currencies.
Stock markets and sterling were cheered as results from
European banking heavyweight HSBC (HSBA.L: Quote, Profile, Research) came in stronger than
Market liquidity was thin however, with many European
markets closed for holidays, and analysts said that this had
sharpened currency moves.
News that a major earthquake had shaken parts of China had
limited initial impact on the currency market as investors
awaited more news of damage. Click on [nSP239734]
The dollar has rallied in recent weeks on speculation that
the Federal Reserve may be nearing the end of its rate-cutting
cycle, having slashed them by a total of 3.25 percentage points
since September to 2 percent.
Analysts said that while risk appetite had picked up with
stock markets rising, many investors stayed cautious about the
health of the global economy and financial systems.
"I think sentiment is slowly moving in terms of a slowdown
in the U.S. spreading to the rest of the world. Maybe some
participants are thinking that they have priced in a bit too
much weakness in the U.S.," Citigroup currency strategist David
"Our own sense is that the slowdown in the U.S. is going to
be a lot worse because it's very much the epicentre of the
financial market problems and the housing market problems," he
The euro was down 0.2 percent on the day at $1.5449 <EUR=>
having earlier dipped below the $1.54 mark to hover within range
of a two-month low of $1.5284 hit last week.
Against a basket of currencies, the dollar was up 0.1
percent to 73.219 .DXY, pushing towards 73.895 touched last
week for the first time since early March. Sterling bucked the
dollar's trend to rise 0.3 percent on the day to $1.9586.
The dollar rose more than 1 percent to near a session high
of 103.95 yen <JPY=>, with much of the gain having been nade
before news of China's earthquake.
Market participants offered limited initial reaction to an
announcement by the People's Bank of China that it raised its
reserve requirement ratio by 0.5 percentage point, to take
effect on May 20. Click on [nBJB000090]
FED PAUSE EYED
After the dollar's tumble in the wake of aggressive Federal
Reserve interest rate cuts and efforts to pump cash into
gummed-up money markets, the Fed is now seen on hold and
expectations are mounting for other central banks to cut rates.
Analysts said that a series of speeches by Fed officials due
this week would be scrutinised for more clues into whether the
end for aggressive rate cuts was near.
"If they come out hawkish it could be a sign that Fed cuts
are down for the short term ... and this would support the
dollar," UBS currency strategist Geoffrey Yu said.
At the same time, mounting signs that European growth is
stumbling has stirred speculation the European Central Bank
could edge towards trimming rates.
The high-yielding Australian <AUD=> and New Zealand <NZD=>
dollars were initially hit, with the Kiwi nearing a four-month
low hit earlier in the day before wiping the losses.
Antipodean currencies suffered after a survey showed
business confidence in Australia hitting the lowest since
September 2001 and housing finance falling sharply, while a
report in New Zealand showed housing price gains slowing for an
eighth straight month and projected to fall.
In the case of New Zealand, the country's central bank is
now seen slashing rates by up to 125 basis points over the next
year and thereby eroding the allure of the New Zealand dollar's
8.25 percent rate -- the highest among industrialised economies.
RBC strategists said in a note to clients they had added to
their existing short NZD/USD position at $0.7650 and continued
to target a move to $0.6900 in coming months.
"Near term, NZD faces further downside risks," they added.
But while analysts said there were many reasons for a fall
in the kiwi, the case for a slide in the Australian dollar was
not so clear-cut as the country's labour market is robust and
high commodity prices provide an economic boon.
(Additional reporting by Naomi Tajitsu)
(Editing by Ron Askew)
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