Wednesday July 16, 2008 - 10:33:53 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar stabilises off lows, boosted by drop in oil
* Euro steady at $1.5928 <EUR=>
* Dollar stabilises off record lows, sentiment still gloomy
* Weaker oil helps dollar
(Changes byline, updates prices, adds quotes)
By Alastair Sharp
LONDON, July 16 (Reuters) - The dollar steadied on Wednesday
at about a cent above the previous session's record low against
the euro, cheered by a sharp retreat in oil prices but haunted
by concerns about a fragile financial sector.
Oil was steady after falling sharply on Tuesday, partly due
to worries that a faltering U.S. economy would hit demand
"It will be equities and the oil price that will set the
tone for the dollar," said Niels Christensen, an FX strategist
at Nordea in Copenhagen, adding that dismal corporate news could
offset fears of rising inflation.
The euro was flat at $1.5928 by 0955 GMT <EUR=>, having
pulled back from a record high of $1.6038 hit the previous day
according to Reuters data.
In a sign of risk aversion and poor dollar sentiment, the
greenback hit a 1-1/2 month low versus the low-yielding Japanese
yen, at 103.93 yen <JPY=>.
The euro fell to a one-month low of 165.62 yen <EURJPY=>.
Concerns about the U.S. financial sector intensified earlier
in the week after the U.S. government was forced to come up with
a rescue plan for mortgage lending giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and
Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), just as one of the country's biggest
mortgage banks collapsed.
In addition, Federal Reserve Chairman Ben Bernanke did the
dollar no favours when he said on Tuesday that restoring
stability to the hard-hit financial sector was his top priority,
suggesting any potential interest rate increases to contain
inflation will not come soon.
But while those concerns -- which had sent the dollar to a
record low versus the euro -- remained, investors took some
heart after the U.S. Securities and Exchange Commission (SEC)
issued an emergency rule on Tuesday to limit certain types of
short selling in major financial firms.
"If it (the SEC rule) actually proved successful in
stabilising the financials, it will also help stabilise the
dollar. The dollar/oil link is ... probably another factor
supporting the dollar," Paul Mackel, strategist at HSBC. "But
the dollar is still on a knife edge and the sentiment is still
very, very poor."
However in the longer run, Nordea's Christensen said the
euro zone's slowing growth would put a lid on euro/dollar.
"Euro/dollar is very close to the top. We don't expect it to
stay above $1.60 for an extended period," he said.
Euro zone consumer price figures released on Wednesday
confirmed inflation hit a record 4.0 percent year-on-year in
June and had little effect on the currency pair.
Comparable U.S. data is due at 1230 GMT, with consumer
prices seen rising 0.7 percent on the month in June after a 0.6
percent increase in May.
On Tuesday, Bernanke told the Senate Banking Committee that
financial markets and institutions remained under "considerable
stress" and restoring stability was a top priority. Bernanke
will probably repeat those themes when he speaks at the House of
Representatives later on Wednesday.
While the European Central Bank raised interest rates to
4.25 percent this month, slowing economic growth is keeping the
Fed's hands tied. Industrial production and housing market data
on Wednesday could provide further proof of a limping U.S.
"Today's U.S. data are unlikely to shift the stagflationary
theme, with June headline CPI rising and production/housing data
easing," said Commerzbank Corporates & Markets in a client note.
Minutes from the Fed's June meeting are also due on
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