Friday October 3, 2008 - 11:47:07 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dlr pauses rally; spotlight on US bailout, jobs
* Euro poised for biggest wkly loss vs dlr in its lifetime
* Money market squeeze, dovish ECB help underpin dollar
* U.S. House vote on rescue plan and employment data eyed
(Changes dateline, byline, adds quotes, updates prices)
By Veronica Brown
LONDON, Oct 3 (Reuters) - The dollar eased from the previous session's
searing rally on Friday, but was poised for its best weekly gain versus the euro
in the single currency's lifetime after the European Central Bank opened the
door to rate cuts.
Markets were also in cautious mode after another tumultuous week ahead of
keenly watched U.S. non-farm payrolls data at 1230 GMT and a U.S. House of
Representatives vote on a $700 billion financial industry bailout package later
in the day.
Demand for the dollar from banks and financial institutions shut out of
frozen money markets have helped propel the greenback up nearly 4 percent versus
a basket of major currencies .DXY this week, despite the fact that the United
States is the epicentre of the global financial crisis.
"The one place where there is relatively (normal) functioning and...
relatively normal liquidity is in the biggest market in the world: the spot fx
market ... it's certainly a factor affecting the dollar spot rate," said Derek
Halpenny, senior currency economist at BTM-UFJ.
The reality of the international nature of the financial market crisis,
highlighted by the rescue of some major European lenders including Fortis
(FOR.BR: Quote, Profile, Research, Stock Buzz)(FOR.AS: Quote, Profile, Research, Stock Buzz) this week, has also hurt the euro.
"The U.S. authorities are extremely committed to solving this
crisis...Europe would never be able to some up with such a huge stimulus package
as they are talking about in the U.S. and that puts the euro area at a very high
risk," Danske Bank senior currency strategist John Hydeskov said.
The deteriorating financial backdrop prompted the ECB, which left rates
unchanged at 4.25 percent on Thursday, to open the door for its first rate cut
in more than five years with President Jean-Claude Trichet saying inflation
risks have eased as financial market turbulence hit the euro zone.
"Trichet opened up for a rate cut, some would say that it's a bit late, but
they (ECB) needed some time to change the mood of the board," Hydeskov said.
By 1055 GMT, the dollar index .DXY, which gauges its performance against a
basket of six major currencies, was down 0.3 percent at 80.237 .DXY, but still
within easy reach of the one-year peak of 80.794 hit in the previous session.
The euro rose 0.3 percent on the day to $1.3854 <EUR=>, having plumbed a
13-month trough of around $1.3743 on Thursday. The single currency was on track
for its worst weekly percentage loss since its inception in 1999.
Against the yen, the single currency was flat at 145.52 yen <EURJPY=>, but
held above a two-year trough of around 144.56 yen touched earlier in the global
The dollar eased 0.3 percent to 105.00 yen <JPY=>.
The squeeze in interbank lending -- which has driven three-month dollar
Libor rates <USD3MFSR=> up a full percentage point in two weeks to more than
double the Federal Reserve's 2 percent rate target -- is a major factor behind
the dollar's gains, analysts say.
Against that backdrop, a slew of data this week showing the U.S. economy has
likely fallen into a full-blown recession has done little to take the wind out
of the dollar's rise, even as the Fed is seen likely to cut rates as well this
But the key U.S. jobs report, which is expected to show the world's biggest
economy shed 100,000 jobs in September with the jobless rate steady at 6.1
percent, may help bring market focus back to fundamentals, giving dollar bulls
pause for thought.
"We see risks of a weaker outcome. If delivered, U.S. dollar outperformance
may well be checked," said ING strategist Tom Levinson, who is expecting a drop
of 150,000 jobs and an unemployment rate of 6.5 percent.
(Additional reporting by Ian Chua in London, editing by Andy Bruce)
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