Friday November 28, 2008 - 16:02:35 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar rises vs euro, supported by risk aversion
* Dollar rises vs euro as risk aversion persists
* Yen supported on persistent global economy fears
* Euro zone inflation plunges
(Recasts, adds comments, changes dateline and byline)
By Vivianne Rodrigues
NEW YORK, Nov 28 (Reuters) - The dollar rose against the
euro on thin trade on Friday, as weak equities markets and
fears of a deepening global recession led investors to seek the
U.S. currency as a haven.
Worries about consumer spending helped weigh on U.S. and
European shares, while the low-yielding yen gained ground.
Extreme risk aversion and repatriation flows have been
supporting the U.S. currency recently.
The euro weakened against the yen and sterling on growing
expectations that slowing euro zone inflation may lead the
European Central Bank to cut interest rates more aggressively
next week from the current benchmark rate of 3.25 percent.
Trading volumes were lower than usual as U.S. markets
reopened for only half a day after Thanksgiving Holiday.
"Trading is very thin, with the dollar getting support from
a drop in global equities and fear the start of this shopping
season is going to be really bad," said Greg Salvaggio, a
currency trader at Tempus Consulting in Washington D.C.
"Euro/dollar is going to be stuck in a narrow trading range
between 1.26 and 1.30 for now."
In mid-morning trading in New York, the euro was 1.1
percent lower at $1.2746 <EUR=>, while the dollar was up 0.7
percent against a basket of six currencies at 86.378 .DXY.
Some traders also mentioned sizable month-end dollar
buy-orders at the London (1600 GMT) currency fixing was adding
support to the U.S. unit.
Political jitters may also have helped the dollar after
militants killed more than 100 people in Mumbai, India's
financial center, in coordinated attacks. For details, see
"It's another 'negative' looming in the markets," said
Salvaggio. "It may also be giving a bit of a lift to Treasuries
and the dollar this morning."
Looking ahead to next week, markets were bracing for
interest rate decisions by several central banks next week,
including the Bank of England, the ECB, the Reserve Bank of
Australia and the Reserve Bank of New Zealand.
Provisional figures showed euro-zone annual inflation
slowed to 2.1 percent in November from 3.2 percent in October.
"The ECB seems to be lagging behind the curve. Now that the
region has officially hit a recession, it is possible that they
will be more aggressive in easing rates," said Kathy Lien,
director for currency research at GFT Forex in New York.
"The only factor holding them back is inflation pressures.
Although producer and consumer prices have been easing, the
central bank is not entirely convinced that the upside risks to
prices have alleviated," she added.
The euro dropped 1.2 percent to 121.58 yen <EURJPY=>, while
the dollar was little changed at 95.42 yen <JPY=>.
For the UK, economists polled by Reuters on Thursday expect
the BoE will follow up November's 150 basis point interest rate
cut with at least a 50 point reduction when it meets next
"The Bank of England has been the most aggressive and
proactive of the G-10 central banks in their attempts to ease
monetary policy," Lien said. "With the economy in a recession
according to UK officials, interest rates could fall as low as
1 percent if the crisis continues well into the New Year.
(Additional reporting by Veronica Brown and Jessica Mortimer
in London; Editing by Tom Hals)
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