Monday September 8, 2008 - 09:24:45 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar rises, yen slides on Freddie, Fannie news
* Dollar index rises, recovering from early slide
* Freddie, Fannie news boosts U.S. currency
* Yen slides broadly on warming risk demand
(Changes dateline, byline, adds comment, updates quotes)
By Naomi Tajitsu
LONDON, Sept 8 (Reuters) - The dollar jumped against a
broadly weaker yen and rebounded against a host of currencies on
Monday after the U.S. government took control of Fannie Mae
(FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz).
Sunday's takeover of the battered mortgage giants, which own
or guarantee half of the country's $12 trillion in outstanding
home mortgage debt, was seen by some people as a positive step
to stave off wider U.S. financial and housing market weakness.
It followed concern about growing losses at both,
undermining the lenders as other sources of home lending have
(For details please double click on [ID:nN07479172])
The move was also taken as a signal to start piling back
into risky carry trades, which saw the low-yielding yen sink
broadly and high-yielding units such as the New Zealand and
Australian dollars rally.
The dollar index .DXY rose 0.5 percent in European trade,
recovering from an earlier slide as traders adjusted short
positions in the U.S. currency, which initially fell broadly in
a knee-jerk reaction to Sunday's news.
U.S. Treasuries fell sharply and European shares rallied
roughly 4 percent on the news of the conservatorship, which some
people believed may help to allay some of the market's worries
about the global financial system and increase risk appetite.
As share markets cheered the news, analysts said that a
warming in risk demand may continue to push the low-yielding yen
down, helping to boost the dollar in the near term.
"A key will be whether the relief of this continues, and if
it does, it could mean a weaker yen," said Steve Barrow, head of
G10 currency research at Standard Bank.
Yet he added that uncertainty surrounding the plan and
worries about the U.S. economy -- highlighted by a poor
employment report late last week -- may prompt a correction in
the U.S. currency's buying trend of the last month or so.
The euro was up 0.1 percent at $1.4280 <EUR=> by 0753 GMT
but pulled back significantly from a session high of $1.4428.
The pair hovered near an 11-month low hit late last week.
The euro and other currencies has been struggling against
the dollar on the view that global economies are vulnerable to
U.S. economic weakness.
The dollar <JPY=> rose 1.2 percent to 109.05 yen, with the
Japanese currency also falling against higher-yielding
currencies as traders returned to riskier trades, dumping the
low-yielding currency for assets in higher-yielding ones.
This reversed the yen's gains made on broad flight-to-safety
buying, pushing up the Australian <AUDJPY=R> and New Zealand
<NZDJPY=R> dollars roughly 2 percent each.
Sterling briefly cut gains versus the dollar after UK
manufacturing output prices suggested that factory gate
inflation might have peaked. By 0938 GMT, the pound stood at
$1.7718, up 0.3 percent on the day, having dipped briefly just
after the data <GBP=>. The euro was flat at 80.63 pence
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Analysts said that the euphoria surrounding the news of the
conservatorship could continue in the near term, but cautioned
that the impact of the rescue package on the U.S. economy may be
limited and the outlook for the dollar remains unclear.
Economic weakness was highlighted on Friday, when figures
showed a jump in the unemployment rate as the economy lost jobs
for the eighth month in a row.
"Whether the Treasury's move is sufficient to more lastingly
break the negative dynamics in the financial markets remains to
be seen," analysts at Danske said in a research note.
"Plenty of troubles are still out there and with U.S. house
prices still falling, it is too early to make any firm
conclusions on the lasting impact of this intervention," they
said, adding that U.S. growth remains "very shaky".
(Reporting by Naomi Tajitsu, editing by David Stamp)
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