Wednesday October 29, 2008 - 10:11:50 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen up on recession fears; Dlr pressured, Fed eyed
* Yen recovers major losses as global recession fears remain
* Equity markets jump, putting dollar under pressure
* Fed decision eyed; rate cut of at least 50 bps seen
(Changes byline, recasts, updates prices, prvs TOKYO)
By Jessica Mortimer
LONDON, Oct 29 (Reuters) - The yen rose broadly on
Wednesday, recouping steep falls seen the previous day with
global recession fears keeping investors in a jittery mood,
despite improving equity market sentiment.
The dollar came under pressure as a surge in U.S. stocks
late on Tuesday was replicated in Europe, with investors taking
some comfort from prospects for further central bank interest
rate cuts to help stimulate flagging economies around the world.
The U.S. Federal Reserve's rate verdict is expected later on
Wednesday, with futures markets pricing in a large probability
of at least a 50 basis point rate cut from the current 1.5
Meanwhile, speculation grew that the Bank of Japan could cut
interest rates on Friday, helping the Nikkei index of Japanese
shares .N225 to close up 7.7 percent.
But the equity market respite was expected to be brief, with
the reality of a stalling global economy seen coming back to the
forefront of sentiment.
"The view that the massive gains in U.S. stocks overnight
are unsustainable has encouraged people to buy back yen," said
James Shugg, economist at Westpac in London.
At 0925 GMT, the euro was up 0.3 percent against the dollar
<EUR=> to $1.2751, having earlier surged above the $1.28 level.
Against the yen, it fell 1.6 percent <EURJPY=R> to 123.77 yen.
This was still well above recent six-year lows below 114 yen.
The dollar dropped 1.7 percent against the yen <JPY=> to
97.01 yen, having gained over 6 percent on Tuesday.
FED IN SIGHT
Meanwhile, some analysts said the prospect of a steep U.S.
rate cut had pressured the dollar, particularly after U.S.
consumer confidence slumped to a record low.
"The dollar has certainly undergone a massive reversion
overnight with traders now essentially convinced that the Fed
will tonight drop rates to just 1 percent as they attempt to
shore up the US economy," Gary Thomson, head of sales trading at
CMC Markets said.
The trend could reverse swiftly, however, if other central
banks follow suit as global recession takes hold, he said.
"Of course failure for the FOMC to deliver tonight, or any
suggestion that rate cuts will extend beyond the US could change
the situation during the hours ahead," Thomson added.
Futures markets are pricing in a 56 percent chance of the
Fed funds rate being cut 50 basis points to 1 percent, while
they also point to a 44 percent probability of a 75 basis point
(Reporting by Jessica Mortimer; Editing by Victoria Main)
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