Tuesday September 23, 2008 - 09:35:04 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar claws up; US bailout concerns seen weighing
* Dollar fights back from one-month low against euro <EUR=>
* Further dollar falls seen as US plan hits bumps in Congress
* Euro area in focus; manufacturing sector contracts
* Risk aversion high as stock markets extend falls
(Changes dateline, byline, adds quotes, updates prices PVS
By Veronica Brown
LONDON, Sept 23 (Reuters) - The dollar clawed back ground
against euro on Tuesday after suffering its biggest one-day loss
since the single currency's inception, but worries about a $700
billion U.S. bank bailout package was seen limiting its rebound.
While problems in the United States were the main focus,
weakness in the euro zone's manufacturing sector drove the euro
back from one-month highs set against the dollar in the previous
The dollar's sharp dive on Monday was exacerbated by a sharp
surge in crude oil, which rose about 16 percent CLc1 as
investors focused on the possible budgetary impact of the U.S.
financial rescue plan.
"While this bailout package does remove some of the systemic
risk from the U.S. financial system, its also clear that with
the potential rise in U.S. debt ratios and the effect on their
fiscal balance will hurt the dollar in the medium term," Danske
Bank currency strategist Kasper Kirkegaard said.
Asian overnight activity was relatively calm due to a public
holiday in Japan, allowing the battered U.S. currency to recover
some ground, but risk aversion remained high as financial stocks
led European share prices lower [.EU].
By 0841 GMT, the dollar was up half a percent against a
basket of currencies at 76.600 .DXY, while the euro fell 0.7
percent to hit session lows at $1.4688 <EUR=>. The dollar also
rose 0.3 percent to 105.79 <JPY=>.
It was helped as the surge in oil prices ran out of steam,
with crude down $2.55 at 106.91 a barrel. Oil's spike on Monday
saw the euro stage its biggest one-day gain since its inception
in January 1999 to hit a one-month high of $1.4867.
Investors remained on tenterhooks as the U.S. bailout plan,
which would give sweeping powers to the U.S. Treasury to buy
mortgage-related bad debts from financial firms, has yet to
receive congressional approval.
U.S. politicians have expressed concerns over the current
state of the legislation, with approval expected to drag into
next week, damping initial market euphoria. [ID:nSP4331]
Moreover, doubts have grown on the effectiveness of the
package to resolve a crisis that has seen the collapse of Lehman
Brothers (LEHMQ.PK: Quote, Profile, Research, Stock Buzz) and an $85 billion bailout of American
International Group (AIG.N: Quote, Profile, Research, Stock Buzz).
EURO ZONE PRESSURED
While the U.S. financial woes have dominated sentiment, poor
manufacturing activity data served as a timely reminder that it
was not the only source of concern in the global economy.
Euro zone manufacturing activity fell to a near seven-year
low of 45.3 from August's 47.6, considerably below the 47.2
"People have been looking at the PMI out of the euro zone
and have been flip flopping (over) what has been the worst story
-- is it the U.S., is it the euro zone," said Chris Turner, head
of FX strategy at ING.
UBS said in a note to clients that uncertainty over the
implementation of the U.S. plan "will keep the dollar on the
back foot for now."
However, a successful implementation of the plan would
ultimately prove positive for the dollar, UBS said.
U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben
Bernanke start two days of congressional hearings on Tuesday to
hasten approval of the bailout.
Traders said concerns about the bailout plan could push the
dollar towards a four-month low of 103.54 yen hit last week,
when investors rushed for safe haven assets off the back of
plunging equities after the failure of Lehman Brothers.
(Reporting by Veronica Brown; Editing by Swaha Pattanaik)
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