Wednesday November 19, 2008 - 21:41:20 GMT
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Reuters - www.reuters.com
FOREX NEWS-US dollar slips against yen, up versus euro
* Fear of global slowdown lifts yen and dollar
* U.S. consumer prices tumble in October
* US auto sector, commercial property a worry
* For up-to-the-minute market news, click on FXNEWS
(Updates prices, adds comment, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Nov 19 (Reuters) - The U.S. dollar slipped versus
the yen on Wednesday, as worries grew about the ailing U.S.
auto industry and a record slide in U.S. consumer prices fanned
fears of a deeper recession.
The euro, meanwhile, weakened against the dollar as worries
about a worsening global slowdown prompted investors to shun
stocks and other risky assets for the safety of U.S.
Wall Street shares ended sharply lower amid uncertainty
about a proposed rescue package for the auto industry, with the
Dow index closing below 8,000 points for the first time since
Minutes from the Federal Reserve's meeting last month
released on Wednesday further added to the bleak global
The Fed said U.S. economic data in the run-up to the next
meeting in December would show significant weakness and could
well mean that the bank may need to cut its benchmark interest
rate target from an already low 1.0 percent. For story, click
Safe-haven capital flows have also benefited the Japanese
currency as investors, in times of stress in financial markets,
tend to sell assets financed with the cheaply-borrowed yen.
"The forex story has become a subsidiary one to the
performance of the equity market, which in turn is playing
second fiddle to the day two 'we need more money' discussions
on Capitol Hill," said Andrew Wilkinson, senior market analyst,
at Interactive Brokers in Greenwich, Connecticut.
"The dollar remains bid for its safe-haven status while the
yen remains the safety valve against equity market losses.
Neither currency can lose much more in terms of yield."
In late afternoon trading, the dollar fell 1.2 percent to
95.79 yen <JPY=>, while the euro fell 2.0 percent to 119.94 yen
Overall the U.S. has been in an uptrend in the past three
months, seeing a two year high in early November, based on the
Intercontinental Exchange's dollar index .DXY.
DEFLATION RISK, AUTO SECTOR WOES
Sterling was little changed against the greenback at
$1.4970 <GBP=>, after trading higher for most of the session.
The British currency had risen despite minutes from this
month's Bank of England policy meeting showing policy-makers
unanimously agreed to cut interest rates by 150 basis points
and even discussed a bigger cut [ID:nLJ451755].
The general market unease about the dollar was also sparked
partly by problems in the U.S. commercial real estate sector,
analysts said, while the U.S. consumer price index fall in
October, reported earlier on Wednesday, stirred not only
recession fears but concerns about deflation as well.
Federal Reserve Vice Chairman Donald Kohn on Wednesday also
warned against deflation, saying the risk has risen in recent
months and policy-makers should be vigilant to ensure the
phenomenon does not become sustained.
"The fact the deflation appears to be mentioned
increasingly by Fed officials suggests the risks are tangible
and the Fed would not hesitate to move on to further
non-conventional measures such as quantitative easing," said
currency strategists at Wells Fargo in New York in a note.
The fate of the struggling U.S. auto industry was another
worry for investors, as automakers may fail to win emergency
government loans. General Motors, Ford and Chrysler have warned
that bankruptcy for one or more would lead to massive job
Executives from all three companies have been testifying
before Congress in the last two days to press their case for
$25 billion in emergency loans.
Michael Woolfolk, senior currency strategist at The Bank of
New York-Mellon, said bankruptcy for any of them "could prove
to be the next Lehman Brothers because of the systemic risk
their failure would create."
(Additional reporting by Steven C. Johnson)
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