Monday November 3, 2008 - 21:12:58 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar rises ahead of election on safe-haven bid
* Dollar gains versus most majors in safe haven bid
* U.S. factory activity shrinks further in October
* U.S. election, ECB, BoE meetings in focus
(Recasts, updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, Nov 3 (Reuters) - The dollar rose on Monday ahead
of the U.S. presidential election as lingering concerns about
financial markets and the world economy prompted investors to
reduce risk and seek safety in dollar-denominated assets.
Expected interest rate cuts later this week by the European
Central Bank and Bank of England hurt the euro and sterling,
while data showing U.S. factory activity plunged to a 26-year
low last month boosted U.S. and global recession fears. [For
more, see nN03331980]
The dollar tends to gain as risk aversion rises because
dollar-based investors repatriate money or look for safety in
U.S. Treasury debt.
"Risk aversion is returning a bit and it's tied to
underlying concerns regarding the financial sector as well as
the global outlook," said Matthew Strauss, senior currency
strategist at RBC Capital Markets in Toronto.
He said the U.S. manufacturing data, an $11 billion capital
injection in South Korea, an interest rate cut in India and
expected rate cuts in the euro zone, Britain and Australia show
ongoing stress in financial markets and the world economy even
as interbank lending markets continue to loosen up.
Late afternoon, the euro was down 0.7 percent at $1.2640
<EUR=> but off a session low of $1.2598. Sterling fell 1.4
percent to $1.5835 <GBP= after earlier dipping to $1.5784.
Still, the credit market thaw meant risk appetite remained
more robust than it was during the height of the credit crisis
last month. The dollar rose 0.6 percent to 99.04 yen <JPY=>,
which analysts tied partly to the Bank of Japan's move to cut
interest rates by 0.2 percentage points last week.
The high-yielding Australian dollar rose 1.9 percent to
$0.6801 despite expectations of a half percentage point rate
cut when the central bank meets on Tuesday.
"Volatility seems to be stabilizing, and volatility was one
of the key things driving risk aversion," said Sebastien Galy,
senior currency strategist at BNP Paribas in New York.
But he said while the currency market is "moving away from
extremes," he added added it's "still not back to normal."
RATE CUTS, US ELECTION IN FOCUS
On the monetary policy front, the ECB, BoE and the Reserve
Bank of Australia are expected to cut rates by at least half a
percentage point. The U.S. Federal Reserve last week cut its
key rate by half a point to 1 percent and the Bank of Japan
(BoJ) cut its rate to 0.30 percent from 0.50 percent.
Analysts say the BoE is the most likely of the three to
surprise markets with an even heftier rate cut.
Investors were also focused on the U.S. presidential
election on Tuesday. Analysts say a win by Democrat Barack
Obama, who is leading his Republican opponent, John McCain, in
most polls, would be marginally better for the dollar, if only
because the Democrats already control Congress. That would make
it easier for a new administration to push through activist
policies to boost markets.
Longer-term, it may be the popularity of the next president
that determines who strongly the dollar performs, said Alan
Ruskin, chief international strategist at RBS Greenwich Capital
Markets in Greenwich, Connecticut.
"The dollar is being influenced by many factors of late,
but the prospect of a more popular president and the potential
for some feel good factor cannot be discounted as also
supporting the dollar recovery," Ruskin said. "As the president
goes, so goes the dollar, and as the dollar goes, so goes the
(Additional reporting by Nick Olivari; Editing by Chizu
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