Wednesday September 24, 2008 - 12:36:54 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen falls on Goldman deal, dlr skittish on Fed plan
(Removes extraneous reference to yen in 12th par)
* Yen down; Goldman deal, Fed swap lines ease risk aversion
* Dlr index .DXY pressed by uncertainty on US bailout plan
* Risk aversion plays reduced
* Euro recovers after brief fall on weak German Ifo
(Recasts, changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, Sept 24 (Reuters) - The yen fell broadly on
Wednesday as investors eased back from risk aversion, taking
some comfort from news that Goldman Sachs would get fresh
funding and the establishment of new Fed currency swap lines.
But while the dollar found respite against the yen, nagging
worry about U.S. financial sector health hampered its broader
progress with uncertainty spreading over the U.S. government's
proposed $700 billion package to mop up toxic mortgage debt.
After getting caught in the eye of a financial storm that
worsened last week when investment bank Lehman Brothers
collapsed, investors took some reassurance from news that Warren
Buffett's Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research, Stock Buzz)(BRKb.N: Quote, Profile, Research, Stock Buzz) said it would
invest $5 billion in Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz).
Goldman is also working out a deal to get several billion
dollars from Sumitomo Mitsui Financial Group (8316.T: Quote, Profile, Research, Stock Buzz), Kyodo
news agency reported.
The U.S. Federal Reserve also set up currency swap lines
with more central banks, aiming to boost short-term U.S. dollar
liquidity and help drive down interbank lending rates.
"Both the developments in the investment banking sector and
the temporary arrangement the Fed has made with some more
international central banks is reflected in the yen's pricing,"
SG currency strategist Phyllis Papadavid said.
"But it's still a very uncertain environment and the risk
backdrop is very difficult, despite policymakers efforts.
There's a lot of uncertainty around what everyone is focused on,
which is the U.S. policy package," she added.
Euro's gains against the dollar were stemmed by data showing
a bigger-than-expected drop in German corporate sentiment.
The Munich-based Ifo economic research institute said its
business climate index fell to 92.9 in September from 94.8 in
August. It was the lowest reading since May 2005 and below
market expectations of 94.1.
At 1120 GMT, the dollar was down 0.1 percent against a
basket of major currencies .DXY, while the euro rose 0.2
percent on the day to $1.4682 <EUR=>.
The dollar was up 0.5 percent at 106.05 yen <JPY=> after
hitting a session high of 106.34 yen. The euro gained 0.7
percent to 155.64 yen <EURJPY=>.
In a bid to help dollar-starved banks raise funds, the Fed
said it would establish temporary currency swap lines with
central banks of Australia, Denmark, Sweden and Norway worth a
total of $30 billion.
But bank-to-bank lending markets are still under stress. The
interbank cost of borrowing overnight and three-month sterling
jumped on Wednesday, the three-month cost of borrowing dollars
and euro also rose, according to the British Bankers
Association's latest daily fixing.
CERTAINLY MORE UNCERTAINTY
The dollar, which had seen a stunning run higher before the
latest bout of turbulence, has been on the back foot since last
week's demise of Lehman Brothers (LEHMQ.PK: Quote, Profile, Research, Stock Buzz) and the $85 billion
rescue of American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz).
On Monday, if suffered its biggest one day fall versus the
euro since the single currency's inception in January 1999.
Dollar sentiment looked set to stay uncertain as doubts grew
about the effectiveness of the U.S. government's proposed $700
billion bailout plan to tackle the financial crisis.
"The Treasury plan will remain the focus of the market, and
an early approval will likely remain critical to stabilisation
in market sentiment," UBS strategists said in a research note.
Traders will keep a close eye on comments by Fed chairman
Ben Bernanke who is due to continue congressional testimony on
Wednesday on the U.S. government's plan to buy up toxic assets
from banks' balance sheets.
Also slated for release on Wednesday are figures on the U.S.
housing sector, which triggered the global credit crisis and is
seen as key to any economic recovery.
August U.S. sales of existing homes are forecast to have
declined to a 4.93 million annualised rate in August, down from
5 million, according to a Reuters poll ECON.
(Reporting by Veronica Brown; Editing by Ron Askew)
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