Tuesday July 8, 2008 - 10:59:22 GMT
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Reuters - www.reuters.com
FOREX NEWS - Risk averse investors sweep yen, Swiss franc higher
* Euro down 0.6 percent at 167.54 yen <EURJPY=>=
* Sliding stock markets highlight risk aversion
* G8 comments on dollar awaited
(Changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, July 8 (Reuters) - The low-yielding Japanese yen
rose against the euro and dollar on Tuesday and the Swiss franc
also benefitted broadly as global economic jitters hobbled world
stock markets, stoking risk aversion.
Credit worries resurfaced on Monday after a Lehman Brothers
report said a pending accounting change could force Fannie Mae
(FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) to raise a combined $75 billion
in capital. Please click on [ID:nN07435475].
European equities fell sharply in the wake of a dip in Asian
stocks after the report on the two largest U.S. mortgage funders
drove Wall Street shares down, leading the MSCI World Equity
Index to its lowest level since October 2006 .MIWD000000PUS.
The low-yielding yen and Swiss franc tends to benefit as
equity markets falter because investors seek shelter from risk
by cutting exposure to carry trades.
"I think that we've seen the re-emergence of financial
stress and the market has been reminded of the link between
deteriorating macro-economic performance and financial stress,"
said Steven Pearson, chief currency strategist at Bank of
Scotland Treasury Services.
"The FX implications of that mean that you would look to (on
a strategic basis) overweight defensive currencies...those are
the ones with large current account surpluses, that would
include the Swiss franc and yen for example," he added.
By 1025 GMT, the dollar was down half a percent at 106.59
yen <JPY=> while the euro had fallen almost 0.6 percent to
167.54 yen <EURJPY=>.
The Australian <AUDJPY=R> and New Zealand <NZDJPY=R>
dollars, recipients of carry-trade funds, both dropped about 0.3
The credit market jitters limited a dollar rebound spurred
as oil fell over $4 a barrel on Monday CLc1. The euro was flat
at $1.5723 <EUR=>.
The dollar index, which tracks the currency's performance
against a basket of six currencies, was also steady at 72.679
.DXY -- having lost its earlier gains.
Market players were watching the annual summit of the Group
of Eight industrialised nations that concludes on Wednesday for
any comments on the dollar's weakness.
German Chancellor Angela Merkel pressed other leaders for a
reference to exchange rates in the economic communique, a G8
diplomat told Reuters.
U.S. President George W. Bush reaffirmed at the summit that
he supported a strong dollar, a U.S. official told reporters.
Earlier a Japanese official said there was no specific
discussion about currency market moves at the session on the
"It feels as if the market is awaiting the official
communique from the G8 meeting, in case of any USD-bullish
comments," said RBC Capital Markets in a note to clients.
"But without the presence of central banker governors, it
seems the risk of an explicit reference to the USD is somewhat
The euro has dropped about 2 U.S. cents since late last week
on diminishing expectations that the European Central Bank would
boost interest rates again later in the year, traders said.
The ECB raised its benchmark rate to 4.25 percent from 4
percent last week to bring inflation under control. But it then
said it had no bias as regards its policy outlook, suggesting it
was unlikely to tighten again soon.
(Reporting by Veronica Brown; Editing by Gerrard Raven)
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