Tuesday November 25, 2008 - 21:19:08 GMT
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Reuters - www.reuters.com
FOREX NEWS-US dollar falls vs euro as demand for safe haven eases
* US dollar falls for a third day as risk aversion cools
* Fed announces facility to boost consumer lending
* US 3rd Qtr GDP contracts faster than first estimated
* For up-to-the-minute market news, click on FXNEWS
(Recasts, adds comments, updates prices, changes byline)
By Nick Olivari
NEW YORK, Nov 25 (Reuters) - The U.S. dollar dropped for a
third day against the euro on Tuesday, giving the euro its best
three-day percentage advance ever, as new U.S. measures to
boost consumer lending helped ease concerns about the financial
crisis, diminishing demand for the dollar as a haven.
Some investors also sold dollars after a report showed the
U.S. economy shrank at a faster rate in the third quarter than
was originally estimated, while the fall in U.S. house prices
also accelerated, suggesting the Federal Reserve may need to
cut interest rates further.
The U.S. dollar had been in an uptrend against major
currencies in the past three months as repatriation flows and
risk aversion supported the currency.
"There were fears that (the GDP) report would be much
worse. Together with the Fed measures to boost consumer credit,
these should ease risk aversion at least for now," said Ron
Simpson, director of FX research at Action Economics, in Tampa,
Florida. "The markets were relieved."
In late trading in New York, the euro was up 1.2 percent at
$1.3070, hitting three-week highs earlier at $1.3080 <EUR=>.
The euro has gained 4.9 percent against the dollar in the last
three sessions, the best three-day advance since its inception
in January, 1999 at current prices, according to Reuters data.
The dollar was down 1.4 percent against the yen at 95.69
yen<JPY=> after going as low as 94.96 yen.
The U.S. Treasury and Federal Reserve on Tuesday announced
further measures worth about $800 billion to support the debt
and mortgage backed securities issued by mortgage giants Fannie
Mae and Freddie Mac, as well as measures to support
asset-backed consumer lending. [N25276977]
"These steps, along with the others that have been taken
alongside the large fiscal stimulus package, gives greater
optimism that the financial crisis is easing," said Marc
Chandler, global head of currency strategy at Brown Brothers
Harriman in New York. "The urgency to de-leverage may be
Other analysts reiterated that despite the measures, the
downturn in the U.S. economy and the crisis in the financial
system are far from being over, and trading in both stocks and
dollar will remain volatile.
"The size of this (bailout) just keeps growing. There's
nothing to stop it at this point," said Chuck Butler, president
at Everbank World Markets in St. Louis, Missouri.
The U.S. economy shrank 0.5 percent in the third quarter,
the Commerce Department said in its second estimate of third
quarter gross domestic product. It was the sharpest fall since
the same period in 2001. See [ID:nN25493180] The U.S. decline
is widely predicted to accelerate in the fourth quarter.
"In the long run, there are risks" to the dollar, said
Matthew Strauss, senior currency strategist at RBC Capital
Markets in Toronto. "The U.S. government is taking on
additional liabilities to stimulate growth. (But) staying on
the sidelines and letting the economy slide would be much
The dollar index .DXY, which measures the value of the
greenback against a basket of currencies, was down 1.6 percent
The U.S. public holiday on Thursday for Thanksgiving Day
was also impacting trading, analysts said.
"Some people are taking risk off the books as we move in
this shortened trade week for the holidays," said Greg
Salvaggio, vice president of trading at Tempus Consulting in
(Additional reporting by Gertrude Chavez-Dreyfuss, Steven
C. Johnson and Wanfeng Zhou)
(Reporting by Nick Olivari and Vivianne Rodrigues)
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