Friday October 10, 2008 - 00:19:28 GMT
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Reuters - www.reuters.com
FOREX NEWS-US dollar up as cash is hoarded, market looks to G7
* U.S. dollar rises as cash is hoarded
* Dow Jones ends below 9,000, first time since June 2003
* Market eyes G7 for more action after rate cuts
(Recasts, updates prices, changes byline)
By Lucia Mutikani
NEW YORK, Oct 9 (Reuters) - The U.S. dollar edged higher
again on Thursday as short term interest rates for dollars
continued to rise on global money markets, despite coordinated
efforts by many central banks this week to ease the credit
Despite unprecedented efforts by central banks to increase
liquidity in money markets and lower borrowing costs, the fear
of further bank failures continued to deter inter-bank lending
and led corporations, funds, and banks to hoard cash,
especially in U.S. dollars.
"(There has) been a scarcity of dollars and investors
looking for dollars have gotten some through the forex market,"
said Robert Sinche head of strategy for currencies at the Bank
of America in New York.
"That bid will remain for a bit, although there are some
signs that dollar funding markets are beginning to stabilize a
little a bit and if that happens some of this temporary bid for
dollars will begin to susbside."
In late New York trade, the euro was off 0.3 percent at
$1.3585 <EUR=>, while the dollar was up 0.5 percent at 99.720
yen <JPY=>, after dropping to a six-month trough the previous
The Intercontinental Exchange's U.S. dollar index, which
measures the dollar's value against major currencies, was last
up 0.7 percent at 81.462 .DXY, not far from its 14 month high
seen earlier this week.
LOOKING TO THE G7
The dollar's gains on Thursday came amid speculation that
the Group of Seven meeting of finance ministers and central
bankers on Friday in Washington D.C. would follow Wednesday's
coordinated rate cuts with bold steps to unblock the flow of
credit in global markets.
"There are some rumors going around that there is going to
be some more guarantees by the central banks. That has tried to
put a little bit of more confidence in the market," said Ken
Duerr, VP of foreign exchange, BMO Capital Markets in Toronto.
"But looking at the stock market ... the market doesn't
seem too convinced. I think the market needs to hear first-hand
that something actually will happen."
U.S. stocks fell to new five year lows and long dated U.S.
Treasury bond yields rose, while investors in emerging markets
fled to the safety of U.S. dollars and even gold.
"The risk aversion is still very high. What you're seeing
is players exiting the market on risk aversion and speculators
pushing us to new lows for profit. This is a terrible crisis
we're in by any means," said Michael Woolfolk, senior currency
strategist, the Bank of New York Mellon in New York.
"It's very difficult to turn market sentiment around
Stocks on Wall Street tumbled for a seventh straight
session, with the Dow Jones industrial average .DJI closing
below 9,000 for the first time since June 2003.
Markets are looking to the G7 meeting, as well as a broader
meeting of G20 countries over the weekend, for a more
coordinated approach to the global financial crisis.
Markets also expect central banks around the world to cut
rates further after the Fed, the ECB and the central banks of
Canada, England, China, Sweden and Switzerland cut rates
simultaneously on Wednesday.
Marc Chandler, head of global currency strategy at Brown
Brothers Harriman in New York, said there was increasing
speculation that the G7 countries could take another major step
to guarantee all interbank lending.
"It is difficult to evaluate the likelihood, but it's
important to note that officials generally recognize that
current measures are not yet sufficient to turn the corner of
the crisis," he said.
Earlier, the yen fell against against the Australian and
New Zealand dollars, as Asian stocks except Japan's fell. The
Aussie dollar was last up 4.3 percent at 69.19 yen <AUDJPY=>,
while the Kiwi dollar rose 0.3 percent to 60.05 yen <NZDJPY=>.
(Additional reporting by Wanfeng Zhou and Steven C
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