Tuesday December 2, 2008 - 12:43:25 GMT
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Reuters - www.reuters.com
FOREX NEWS-Shaky stocks support yen, interest rates in focus
* Yen rallies to 5-week high vs dollar <JPY=>
* Volatile stock markets keep risk aversion intact
* RBA rate cut keeps focus on lower global rates
(Adds quotes, updates prices)
By Naomi Tajitsu
LONDON, Dec 2 (Reuters) - The yen rallied to a five-week
high versus the dollar on Tuesday as volatile stock markets
reflected continued risk aversion, while investors anticipated
dramatic interest rate cuts later in the week.
An unexpectedly bold 100 basis point cut from the Reserve
Bank of Australia kept the Australian dollar under pressure,
while raising speculation that other central banks may follow
suit with aggressive easing to revive flagging economies.
A steep slide in the yuan to the bottom of its trading band
against the dollar supported the U.S. currency as it raised
speculation that China may be shifting its forex policy to allow
the yuan to depreciate to stimulate the economy.
The dollar has found support in recent months from
deleveraging as investors cut exposure to riskier assets and
repatriated returns into the U.S. unit.
Analysts said expected rate cuts this week would further
benefit the dollar as they would shrink the yield advantage of
currencies such as the euro and sterling.
"The dollar is supported generally because we're seeing a
move towards a convergence of global rates with low U.S. and
Japanese rates," said Chris Turner, head of currency strategy at
ING in London.
"That makes the dollar less unattractive (from a yield
perspective) in a way," he said, noting the possibility of
aggressive rates cuts in the UK, euro zone, Sweden and New
Zealand this week.
The dollar <JPY=> fell as low as 92.64 yen according to
Reuters data, before recovering to 93.14 yen by 1130 GMT, little
changed on the day.
China's yuan closed at the bottom of its daily trading band
against the dollar, which analysts said left open the door to a
slow yuan depreciation, triggering a surge in yuan/dollar
The low-yielding Japanese currency pushed higher on an early
tumble in European shares, which had prompted investors to
unwind more carry trades, in which the yen is used to fund
purchases of assets in higher-yielding currencies.
This had initially put yen crosses under selling pressure,
but a claw back in shares .FTEU3 to trade 0.4 percent higher
on the day later helped to cut yen gains.
The euro <EURJPY=R> was steady at 117.65 yen, while the
Australian <AUDJPY=R> and New Zealand dollars <NZDJPY=R> climbed
roughly 1.0 percent each.
The euro steadied versus the dollar to $1.2650, but sterling
fell 0.6 percent $1.4792 <GBP=>. The UK currency stayed weak
across the board, pushing sterling/yen <GBPJPY=R> as low as
137.14 yen, its weakest level since mid-1995.
MORE RATE CUTS
A Reuters poll shows that a majority of economists expect
the Bank of England to slash rates by 100 basis points on
Thursday, a month after chopping them by 150 basis points to 3.0
Also on Thursday, the European Central Bank is seen cutting
rates by at least 50 basis points from 3.25 percent and possibly
more. Market participants expect the Reserve Bank of New Zealand
to cut rates by 100 basis points or more from 6.5 percent.
Sweden's central bank said on Monday it would hold its next
policy-setting meeting this Wednesday, nearly two weeks ahead of
schedule, prompting speculation of a deep rate cut.
Markets expect Swedish rates to be cut as much as a full
percentage point. The outcome of the meeting will be announced
on Dec. 4.
The Bank of Japan held an emergency policy meeting on
Tuesday and announced the central bank will accept a wider range
of corporate debt as collateral in money market operations to
help ease a squeeze in credit markets [ID:nTKF003180].
The BOJ held interest rates steady at 0.3 percent as
expected at the meeting.
Rates and economic weakness were overarching themes in the
market following official confirmation on the state of the U.S.
economy late on Monday, when the National Bureau of Economic
Research's business cycle dating committee said the economy
slipped into recession in December 2007.
U.S. Federal Reserve Chairman Ben Bernanke said the economy
remained under considerable strain, and that the central bank
had alternative tools it could employ as interest rates approach
Traders said U.S. stocks had extended losses on reports that
Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) is likely to report net losses of as much
as $2 billion for its latest quarter.
(Editing by David Stamp)
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