Wednesday November 26, 2008 - 22:29:34 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar up vs euro; risk aversion spurs safe-haven bid
* Risk aversion boosts U.S. dollar
* EU plans 200 billion euro stimulus package
* China cuts interest rates by 108 bps
* For up-to-the-minute market news, click on FXNEWS
(Recasts, adds comments, updates prices, changes byline)
By Nick Olivari
NEW YORK, Nov 26 (Reuters) - The dollar rose against the
euro on Wednesday as a string of weak U.S. economic reports
renewed worries of a deepening economic recession, leading
investors to seek the greenback as a safe haven.
Dollar gains versus the euro recently have been linked to
repatriation of funds and extreme risk aversion instead of
economic fundamentals, analysts said.
The demand for safety increased on Wednesday as U.S.
economic data showed a much larger drop in durable goods orders
last month, and weak readings on new-home sales, business
activity in the Midwest and weekly jobless claims.
"Overall, the U.S. numbers this morning all have a negative
tone to them and that should keep risk aversion higher," said
Shaun Osborne, chief currency strategist at TD Securities in
U.S. durable goods orders plummeted in October and business
activity in the Midwest withered to the lowest level since the
severe 1982 recession. See [ID:nN26341586]. In addition, sales
of newly built U.S. homes dropped sharply in October and were
running at levels last seen more than 17 years ago. See
"The weak economic data serves as a harsh reminder of the
problems plaguing the U.S. economy," said Kathy Lien, director
of currency research at GFT Forex in New York.
Lien also said she expects thin trading after the U.S.
Thanksgiving Holiday on Thursday to exacerbate volatility in
the currency markets on Friday.
As the New York session began to close, the euro was 1.3
percent lower against the dollar at $1.2885 <EUR=>.
The dollar also gained 1.7 percent against the Swiss franc
to 1.5324 francs <CHF=>, while sterling slipped 0.9 percent
against the dollar to 1.5327 <GBP=>.
Demand for the euro also fell as investors were pessimistic
about whether a European stimulus package will be sufficient to
ease the financial crisis. The currency hit a session low
versus the dollar after the European Central Bank said falling
price pressures in the euro zone have left "ample room" to move
on interest rates. See, [ID:nLQ415125]
"The stimulus packages are a first step and are welcome,
but the fundamentals across the world are still negative,"
Commerzbank currency strategist Antje Prafcke said in
The European plan follows the announcement on Tuesday of an
$800 billion U.S. plan to rescue its debt securities markets.
The European currency was last 0.9 percent lower at 123.26
CHINA CUTS RATES
The dollar gained against the yen, reversing earlier
declines on the day, as U.S. stocks rose, led by beaten-down
large-cap technology shares that investors considered to have
fallen too far, too fast.
The dollar last traded 0.5 percent higher against the yen at
95.68 <JPY=> after declining to as low as 94.62.
The dollar has generally fallen or gained against the yen in
recent months as risk tolerance rose and fell, illustrated by
swings in the stock market. Wednesday's gains in stocks offset
concerns about whether the Federal Reserve's plan would be
The yen has rallied in the past month as risk aversion has
triggered a massive unwind of carry trades, in which investors
used the low-yielding yen to fund purchases of assets in
The Japanese currency was also pressured after China
surprised markets with a 108 basis point rate cut, its largest
since 1997 [ID:nPEK95037]. The yen is often used as a proxy for
the Chinese yuan, which trades in a tight band against the
(Additional reporting by Steven C. Johnson, Gertrude
Chavez-Dreyfuss and Vivianne Rodrigues; Editing by Leslie
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