Tuesday October 14, 2008 - 21:39:52 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar falls as interbank rates ease on rescue effort
* US dollar slips as global rescue plans lift sentiment
* Three-month Libor dollar rates decline
* US to pump $250 billion into banks, including 9 largest
(Recasts, updates prices, changes byline)
By Lucia Mutikani
NEW YORK, Oct 14 (Reuters) - The U.S. dollar fell for a
second straight session on Tuesday as short-term interest rates
for dollars eased following aggressive steps by global
authorities to pump cash into troubled banks to resolve the
The interbank cost of borrowing dollars for three-month
had its biggest fall since March on Tuesday, in response to the
United States's announcement that it would inject $250 billion
into banks, including the country's nine largest.
The move followed similar initiatives in Britain, France
and Germany. Three-month libor dollar rates <USD3MDFSR=> fixed
at 4.63500 percent versus 4.75250 percent on Monday, according
to the British Bankers Association.
As a result there was some improvement in risk appetite,
causing investors to unwind some safe-haven trades in both the
dollar and the Japanese yen, analysts said, noting that the
correction in the U.S. currency was not surprising given a
"There is a renewed sense of optimism in the market about
the efforts to rescue the financial system," said Vassili
Serebriakov, currency strategist at Wells Fargo in New York.
"An improvement in risk sentiment is weighing on the dollar
and the yen which have been benefiting from the dollar funding
shortage in recent days. A lot of currencies were oversold
against the dollar and yen on short-term basis."
The euro climbed to a one-week high of $1.3769 <EUR=>. In
late New York trade, it was quoted at $1.3645, up 0.4 percent.
The euro was on track for its biggest two-day gain versus the
dollar in three-weeks, according to Reuters data.
Against the yen, the euro rose 0.3 percent to 139.02
<EURJPY=>, below 141.72, its high on the day. Last week, it hit
a three-year low at 132.25, according to Reuters data.
The U.S. dollar fell 0.1 percent to 101.89 yen <JPY=>,
surrending earlier gains that had lifted it as high as 103.06
yen, as stocks on Wall Street dropped on worries about the
slowing global growth on company profits.
The greenback rallied broadly last week as stock markets
swooned and investors pulled out of risky trades for the
relative safety of the dollar, a trend that has been
interrupted so far this week.
Against a basket of six currencies, the dollar slipped 0.1
percent to 81.425 .DXY.
DOLLAR'S RETREAT TEMPORARY
But analysts said this move was likely to be temporary,
with interbank lending rates not expected to fall quickly even
after measures by global governments to flood banks with cash.
"We are seeing some unwinding of the safe-haven flows into
the U.S. dollar. The backdrop is still challenging to say that
it's going to be positive for the euro and bearish for the
dollar until through mid-2009," said David Watt, a senior
currency strategist at RBC Capital Markets in Toronto.
"The factors that pushed the dollar higher last week, the
structural shortfall in U.S. dollar funding markets still
exist. We know going forward that eventhough the U.S. economy
is going into recession, the euro zone is also going into
Watt said they expected the European Central Bank to cut
interest rates through 2009 to about 2.5 percent and the
Federal Reserve to ease by another 50 basis points to 1
percent, which should narrow the euro's yield appeal.
Analysts reckon that once the dust settles over the credit
turmoil, attention will revert back to the economic outlook for
both the U.S. and euro zone economies.
"We think the dollar is going to outperform most of the
currencies next year as the U.S. is going to be the first out
of the blocks in terms of an economic rebound," said Wells
Data on Tuesday from Germany's ZEW research institute
showed a bigger-than-expected slide in investor sentiment in
October, suggesting the euro zone's top economy may be in for a
prolonged slump. ID:nBAE001424
The decline in U.S. stocks, however, saw the dollar trim
losses against the high-yielding Australian <AUD=>, New Zealand
<NZD=> dollars and British pound <GBP=>.
(Additional reporting by Steven C Johnson;)
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