Friday October 17, 2008 - 20:51:34 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar, yen rise as global risk appetite falters
* Yen gains vs dollar and euro but off session highs
* Safe-haven flows boost dollar vs euro
* US housing, consumer data paint gloomy economic picture
(Updates prices, adds comment, byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 17 (Reuters) - The U.S. dollar rose against
the euro on Friday, while the yen gained in volatile trading,
as financial distress and economic weakness beyond the United
States persisted, giving the greenback a safe-haven bid.
Weakness in the U.S. stock market has once again supported
the yen versus the dollar, euro and other high-yielding
currencies as investors unwound trades funded using the
Japanese unit's low rates.
Investors also fretted about data showing declines in U.S.
consumer sentiment and housing construction, which fueled fear
that the credit crisis had knocked the economy into recession.
Trading was extremely choppy and liquidity was thin,
though, with rapid rises and falls in the U.S. stock market
driving currency price moves.
Though governments worldwide have started pouring cash into
troubled banks, helping reduce the cost of interbank borrowing,
investors remain worried about the cost to the real economy
from a credit crisis that has persisted for more than a year.
"The dollar continues to have a bid tone, because risk
aversion and the deleveraging that's been going on are still
alive," said Win Thin, senior currency strategist at Brown
Brothers Harriman in New York.
In late afternoon trading, the euro was down half a percent
at $1.3422 <EUR=>. The euro fell 0.5 percent to 136.29 yen
The dollar was off its lows against the yen but remained
down at 101.54 yen <JPY=>. Sterling fell 0.1 percent to $1.7299
When risk appetite fades, the dollar tends to benefit along
with the yen, as dollar-based investors repatriate funds,
seeking safety in U.S. assets. That's a trend that may be hard
to break if incoming economic data globally continues to
deteriorate, analysts said.
On Friday, data showing U.S. consumer confidence suffered
its steepest monthly decline on record in October while new
home construction last month hit a 17-1/2-year low followed
reports detailing drops in retail sales and industrial output.
Signs of trouble also emerged in economies in Eastern
Europe and Asia, while investors expect slower euro zone growth
to force the European Central Bank to cut interest rates again
by year end.
"I'd characterize recent U.S. data as dismal, but no matter
how bad things get here, the global picture looks just as bad,"
and that will support the dollar and the yen, said Omer Esiner,
senior currency analyst at Ruesch International in Washington.
For the next couple of weeks, currency investors will
continue to monitor developments in the credit and stock
Overnight borrowing costs for dollars, euros and sterling
funds, reflected in London interbank offered rates, fell again
on Friday. But analysts said the credit market is still a long
way from a return to normalcy as longer-term lending rates
remain high, which could be a drag on the global economy.
"Money and credit markets have improved in the wake of the
recent barrage of policy measures, but equities have still been
volatile," said CitiFX in a research note.
"The interplay between these forces in driving sentiment
will be far more important for short-term currency direction
than underlying economic developments. In this light, progress
on the implementation of recent policy initiatives will be
Still, anxiety remained high, stoked partly by news Ukraine
and Hungary had turned to the International Monetary Fund and
other foreign lenders to help bolster their financial systems.
(Additional reporting by Steven C. Johnson; Editing by James
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