Tuesday September 9, 2008 - 12:30:07 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar retreats from 1-yr high, rally to resume
* Dollar index hits one-year high, retreats on profit taking
* Initial exuberance over GSEs rescue plan fades
* Dollar seen continuing rally on global economy worries
(Changes byline, adds quotes, updates prices)
By Naomi Tajitsu
LONDON, Sept 9 (Reuters) - The dollar fell on Tuesday,
pulling away from a one-year high hit earlier in the day against
a basket of currencies, although analysts reckoned the move
would be just a blip in its climb higher.
The dollar's broad rally sputtered as traders locked in
profits after big gains spurred on Monday by the U.S.
government's move to salvage top mortgage agencies Fannie Mae
(FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz).
"We're seeing some profit taking in the dollar after recent
moves," said Kamal Sharma, currency strategist at JPMorgan Chase
"But we're still in an environment where we've had the first
big move in market positioning from dollar shorts to dollar
longs ... that's likely to remain the dominant theme in the next
few weeks or so."
The dollar has rallied on the view that other countries will
track U.S. economic weakness, and a souring global growth
outlook continues to favour the dollar, other analysts said.
The dollar .DXY fell 0.3 percent to 79.258 against its
basket after jumping as far as 79.776, its highest in a year,
earlier in the global session.
The euro <EUR=> rallied nearly half a percent to $1.4200 by
1058 GMT, pulling back from an 11-month low of $1.4049 hit
A retreat in U.S. crude oil prices to around $105 a barrel
Clc1 did little to help the dollar during the European
session, with the U.S. currency <JPY=> sliding nearly a third of
a percent to 108.00 yen.
Still, analysts said the dollar would soon resume the climb
which has already driven euro/dollar down 3.5 percent so far
"A large chunk of the dollar's rally has been driven by a
relative growth shift in the global economy, with the United
States relatively stable at a soft level while the rest of the
world has been going down," Credit Suisse FX strategist Martin
NO CURE YET
The euro <EURJPY=R> rose 0.3 percent to 153.25 yen,
recovering from earlier losses as a 1.2 percent rise in European
shares helped to warm some demand for riskier trades
involving selling the yen for assets in higher-yielding
The yen pulled back from a broad rally against
higher-yielding currencies since July as a wave of risk aversion
has prompted investors to unwind carry trades.
But analysts expect the yen to keep gaining on the view that
the U.S. Treasury's conservatorship of Freddie Mac and Fannie
Mae, while addressing some of the systemic risk stemming from
the now year-long credit crisis, will not solve the problems
afflicting the financial markets.
UBS strategists said while U.S. financial problems were far
from over, with the Treasury having been forced into action on
the mortgage agencies and unemployment jumping above 6 percent,
the dollar's resilience had led it to revise up its forecasts.
"We have revised our long term targets for the USD higher
across the board as America's economy is likely to come out of
recession faster than the rest of the world. We now look for the
euro to fall to $1.30 over the next year," UBS said in a note to
(Additional reporting by Veronica Brown; Editing by Ruth
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