Wednesday October 15, 2008 - 20:32:35 GMT
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Reuters - www.reuters.com
FOREX NEWS-US dollar, yen gain as risk appetite diminishes
* Dollar rises against euro; yen gains
* Bernanke comments fan global risk aversion
* High-yielding currencies fall, U.S. stocks tumble
(Recasts, updates prices, adds comment, byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 15 (Reuters) - The dollar rose against the
euro for the first time this week on Wednesday, while the yen
gained on renewed concerns the U.S. government's $250 billion
proposed injection into troubled banks may do little to heal a
bruised financial sector.
Federal Reserve Chairman Ben Bernanke added to market
tension when he said it will take time to restore normal flows
of credit but he pledged that the Fed -- the U.S. central bank
-- would continue to act aggressively to fight the crisis. He
made the remarks before the Economic Club of New York.
High-yielding currencies such as the Australian and New
Zealand dollars also slid as world stocks slumped, ending a
rally seen earlier this week after U.S. and European
governments announced sweeping bank rescue plans.
Safe-haven U.S. Treasuries rose while U.S. stocks plunged,
with the Dow Jones industrial average .DJI and the S&P 500
.SPX posting their biggest one-day fall since October 1987,
sending the dollar and yen soaring.
"The dollar is going to rally in this kind of environment,
with investors flocking to U.S. Treasuries today. The yen will
also continue to do well," said Mark Frey, vice president of FX
trading at Custom House, a global payments dealer in Victoria,
"Bernanke's comments earlier have inspired another round of
risk aversion. Obviously, he was concerned about the growth
prospects for the U.S. economy, and we haven't seen the end of
By late afternoon trading, the euro fell to session lows
below $1.3500 <EUR=> against the dollar, down nearly 1 percent
on the day. The euro zone currency also dropped versus the yen
to 134.95 yen <EURJPY=>, down 3.1 from late on Tuesday.
The dollar dropped 2.1 percent against the yen to 100.00
<JPY=>. The low-yielding Japanese unit tends to rally when risk
appetite fades as investors rush to get out of trades in
higher-yielding currencies and assets financed with cheaply
Data earlier showing U.S. retail sales posted their biggest
monthly decline in more than three years last month also
weighed against the dollar versus the yen.
HIGH-YIELDERS FALL, CREDIT TIGHTNESS STILL EVIDENT
The greenback has lately also tended to benefit in such an
environment against the euro and high-yield currencies as
investors seek relative safety in dollar-denominated assets
such as U.S. Treasuries.
Sterling fell 0.8 percent to $1.7271 <GBP=>. The
Australian dollar fell nearly 6 percent to US$0.6604 <AUD=>,
while the greenback rose 2.3 percent against its Canadian
counterpart to C$1.1877 <CAD=> as oil prices fell.
Interbank rates on dollar, euro and sterling funds,
meanwhile, fell for a second day on Wednesday as massive
measures from governments worldwide have begun to unlock credit
to cash-strapped banks and companies.
The U.S. commercial paper market also showed further
moderate improvement, suggesting sorely needed funds are
flowing to companies worried about a recession.
The European Central Bank on Wednesday said it will allow
banks to swap a larger range of their assets for central bank
funds and offer more funds across a range of currencies in its
latest attempt to combat the punishing financial crisis.
It will also start offering unlimited long-term euro funds
at fixed interest rates and hold its first-ever open market
foreign exchange swaps to provide extra liquidity in U.S.
dollars and Swiss francs to euro zone banks.
Still some analysts said credit tightness, while less
severe than a week ago, was still evident, which has left some
investors reluctant to part with their cash rather than putting
it into higher-yielding investments.
"If the risk environment is going to improve near term, it
is going to rise or fall by events in the money market, for
that is where the government has directed some of the more
sweeping measures," said Alan Ruskin, chief international
strategist, at RBS Global Banking and Markets in Greenwich,
(Additional reporting by Steven C. Johnson; Editing by James
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