Tuesday September 16, 2008 - 20:56:43 GMT
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Reuters - www.reuters.com
FOREX NEWS-US dollar gains after Fed leaves rates on hold
* Federal Reserve leaves benchmark rate steady at 2 percent
* Dollar gains vs euro and yen
* Risk aversion dominates in wake of Lehman collapse
(Updates prices, adds quotes, changes byline)
By Nick Olivari
NEW YORK, Sept 16 (Reuters) - The dollar gained on Tuesday
after the Federal Reserve held interest rates steady at 2
percent, opting for the time being to soothe rattled financial
markets with central bank lending facilities rather than rate
The dollar was volatile in the moments after the U.S.
central bank's announcement as some investors had been hoping
for a rate cut as concern about insurer American International
Group (AIG.N: Quote, Profile, Research, Stock Buzz) mounted, a day after the U.S. stock market
suffered its worst decline since the aftermath of the Sept. 11
attacks. For more on Fed decision, click [nN16370482].
Yet as investors debated the Fed decision and the
accompanying statement they focused on the positive. The dollar
received an added boost against the yen after Bloomberg, citing
a person familiar with the matter, reported the Federal Reserve
is mulling a loan package to AIG. [nWBT009718].
"Right now the lack of the Fed to move on interest rates
might send a bit of confidence to the markets that things are
not as bad as they had thought and that once we clear this AIG
problem it will be getting better," said Greg Salvaggio, vice
president of trading at Tempus Consulting in Washington.
The euro slipped 0.8 percent to $1.4153 <EUR=>, in late New
York trading on Tuesday, well off Monday's session peak at
$1.4479. The dollar index on the ICE Futures Exchange rose 0.8
percent to 79.109 .DXY.
The dollar rebounded from near four-month lows against the
yen, rising to 106.24 <JPY=>, up 1.6 percent on the session,
the best day since April 1. Earlier in the session, the dollar
fell to 103.55, the lowest since late May, according to Reuters
data. On Monday, the yen posted its biggest one-day gain versus
the dollar in about a decade.
The euro, meanwhile, rose 0.7 percent to 150.40 yen
The U.S. dollar was already in positive territory on
Tuesday as nervous investors sought the greenback's safety,
fleeing other markets amid global credit worries.
Adding to fears about the U.S. financial system following
the collapse of Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz), Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz),
the largest U.S. investment bank, reported a sharp drop in
earnings. Goldman's comments also did little to discourage the
flight from risky trades, which added to demand for the dollar.
Fearing the fallout from Lehman and capital-raising
problems at American International Group, investors clamored
for safe-haven assets such as U.S. government bonds while
Central banks also flooded money markets with cash to
encourage banks to overcome credit concerns and lend to one
Analysts said that despite much of the bad news originating
in the United States, the dollar benefited from the widespread
financial jitters as investors, particularly those from the
United States, became increasingly keen to send money back home
"I expect the dollar's upswing to continue. The major
driver behind this is a massive repatriation of foreign-based
U.S. investments including those from foreign funds," said Adam
Fazio, a senior currency strategist, at CIBC World Markets in
"When you have a brand new trend that takes hold, like a
strong dollar, that trend will pretty much remain in force.
Recent corrections in the dollar did little but offer an
opportunity to add to dollar longs," he added.
(Additional reporting by Lucia Mutikani)
(Reporting by Nick Olivari and Gertrude Chavez-Dreyfuss;
Editing by Diane Craft)
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