Wednesday November 5, 2008 - 10:47:01 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dlr rallies as Obama takes White House; ECB eyed
* Dollar gains as Obama claims decisive victory
* Dlr index gains after steep falls Tues; yen rises
* ECB, BoE seen cutting interest rates 50 bp or more Thurs
* EZ Oct services PMI slumps; Dovish ECB Stark comments
(Adds quotes, updates prices, previous TOKYO)
By Jessica Mortimer
LONDON, Nov 5 (Reuters) - The dollar rose against a basket
of currencies on Wednesday, rebounding from a big fall in the
previous session, as Democrat Barack Obama sealed victory in the
U.S. presidential election.
Following the decisive vote results, investors turned their
attention to the global recession, which kept risk aversion high
and pushed stock prices lower. That helped the low-yielding yen
while higher-yielding currencies such as the pound struggled.
Both the Bank of England and the European Central Bank are
expected to deliver big interest rate cuts on Thursday as they
seek to dampen economic slowdowns in the UK and the euro zone.
Analysts said the prospect of lower rates was pushing the euro
and sterling down on Wednesday.
After falling more than 2 percent on a trade-weighted basis
.DXY on Tuesday, dollar buying kicked in shortly after media
projected that Obama had captured the White House
"The dollar is working to recover some of yesterday's losses
and the Presidential election result has certainly added it's
own support," head of sales trading at CMC Markets Gary Thomson
said, adding that a quick result was boosting the U.S. currency.
At 1003 GMT, the dollar was up 0.8 percent on a
trade-weighted basis .DXY at 85.266, while the euro fell more
than 1 percent against the dollar <EUR=> to $1.2840.
Market participants said that a 2.4 percent slide in
European shares was also helping the dollar to gain as
investors remained cool on risk.
The yen gained meanwhile, with the dollar down over 1
percent at 98.45 yen <JPY=> and the euro falling more than 2
percent to 126.40 yen <EURJPY=R>.
ECB, BOE TO CUT RATES
Both the European Central Bank and the Bank of England are
seen cutting borrowing costs by 50 basis points or more on
Thursday, reducing the return on assets held in euros and
"The ECB is expected to cut interest rates by at least 50
basis points and this is why we are seeing the euro pulling
back," BNP Paribas senior currency strategist Ian Stannard said.
Dovish comments on Wednesday from ECB executive board member
Juergen Stark -- seen as one of the arch hawks among euro zone
policymakers -- and more weak euro zone data helped cement rate
Stark told the Financial Times Deutschland that weak euro
zone growth and oil price fluctuations could push inflation
briefly into negative territory. See [ID:nL571838].
Euro zone retail sales fell 1.6 percent year-on-year, data
showed while the Markit purchasing managers' index for the
region's service sector was revised down to 45.8 in October, the
lowest in the series' 10-year history. A reading below 50 marks
contraction in the sector. See [ID:nL3717089].
Meanwhile, the dire state of the UK economy and fears about
its reliance on the crisis-hit financial services sector
prompted talk of the possibility of a rate cut of as much as 100
basis points by the Bank of England on Thursday.
The decision on Wednesday by Abbey, the mortgage bank owned
by Spain's Banco Santander (SAN.MC: Quote, Profile, Research, Stock Buzz) to raise repayment rates on
its tracker loans highlighted the urgent need for official
borrowing costs to fall sharply. See [ID:nL416144].
"Expectations for a 100 basis point cut by the Bank of
England are starting to build. The Abbey move is very
significant and highlights that the BoE needs to do a lot more
in terms of cutting rates," BNP Paribas' Stannard said.
The pound fell roughly 1 percent against the dollar <GBP=>
Talk of a significant fall in UK interest rates gathered
pace after the Reserve Bank of Australia cut interest rates by a
bigger-than-expected 75 basis points on Tuesday.
Along with other central banks around the globe, the ECB and
the BoE slashed interest rates by 50 basis points on October 8
to 3.75 percent and 4.5 percent respectively in a coordinated
(Reporting by Jessica Mortimer; editing by Patrick Graham)
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