Wednesday November 19, 2008 - 12:36:05 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen broadly supported by economic fears
Wed Nov 19, 2008 7:25am EST
* Economy, equity caution lifts yen, supports dollar
* Euro <EUR=> flat at $1.2622, dlr index .DXY unchanged
* Sterling <GBP=> rises, shakes off BoE minutes
(Adds quotes, updates prices)
By Naomi Tajitsu
LONDON, Nov 19 (Reuters) - The yen strengthened broadly
while the dollar steadied on Wednesday as deepening unease about
the world economy put stock markets back under downward
Growing concern over the U.S. auto industry, which is
seeking billions of dollars in government aid, kept investors
away from risky positions, pushing European shares
roughly 1 percent lower.
Trade in most major currencies was subdued following months
of frenzied selling of risky assets as the credit crisis pushed
the global economy towards recession. Extreme risk aversion has
boosted the low-yielding yen and the dollar.
Analysts saw more support for those currencies as markets
wait to see whether a round of aggressive interest rate cuts by
major central banks and plans for fiscal stimulus will help to
take some of the sting out of the recession.
"At the moment we're grappling between whether the response
from global central banks will come through ... and when we will
see fiscal policy announcements," said Stephen Koukoulas,
strategist at TD Securities in London.
At 1153 GMT the euro <EUR=> was little changed at $1.2640,
having traded in a narrow range all day. Against the yen
<EURJPY=R>, it slipped 0.3 percent to 122.10 yen.
The dollar <JPY=> was steady at 96.85 yen. Against a basket
of currencies .DXY, it was barely moved around 87.014.
Sterling rose 0.8 percent against the dollar <GBP=> and the
euro <EURGBP=>, shaking off minutes from this month's Bank of
England policy meeting that showed unanimity on cutting interest
rates by a staggering 150 basis points, and that an even bigger
cut had been considered [ID: nLJ451755].
The higher-yielding Australian and New Zealand dollars fell
around 0.7 percent against both the dollar and the yen.
Economic underperformance, financial market weakness and
asset deleveraging have boosted the yen and the dollar as
investors cut back on carry trades, which play on interest rate
differentials, to seek safety and liquidity. Data on Tuesday
showed a total net inflow of $143.4 billion to the United States
in September, the largest since early 2006.
Still, some in the market say that sentiment for the U.S.
currency may slump if desperate U.S. automakers are unable to
secure an emergency loan from the government.
Top executives at General Motors (GM.N: Quote, Profile, Research, Stock Buzz), Ford (F.N: Quote, Profile, Research, Stock Buzz) and
Chrysler [CBS.UL] have warned that their industry was in serious
trouble, but U.S. Treasury Secretary Henry Paulson on Tuesday
reiterated his opposition to diverting funds from a $700 billion
financial bailout programme to rescue Detroit. [ID:nN18548335]
Some analysts argue that bankruptcy at one of the "Big
Three" U.S. automakers would touch off a cascade of failures
that would cost tens of thousands of jobs and make the economic
downturn even steeper.
But others warn that diverting funds of the $700 billion
Troubled Asset Relief Program away from supporting the financial
system could unleash even greater market and economic turmoil.
"Without such (broad fiscally stimulative) action, we fear
that the U.S. policy could lose credibility leading to eventual
declines in the dollar," UBS strategists wrote in a note on
Currency traders will also look to minutes from the last
policy meeting of the Federal Reserve for clues about how deeply
and how quickly interest rates are likely to be cut again.
Wednesday's U.S. data includes the latest snapshot of the
housing sector -- a root cause of the credit crisis -- and
consumer price inflation. ECON
(Reporting by Naomi Tajitsu; Editing by Ruth Pitchford)
Â© Thomson Reuters 2008 All rights reserved
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