Friday December 19, 2008 - 21:18:26 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar jumps vs euro, biggest daily gain in 2 months
* ECB deposit rate cut weighs on euro zone currency
* Dollar up vs yen on White House auto aid plan
* Japan cuts benchmark rate 0.1 percent
(Adds comments, updates prices, changes byline)
By Vivianne Rodrigues
NEW YORK, Dec 19 (Reuters) - The U.S. dollar jumped against
the euro on Friday, posting its biggest daily gain in almost
two months, after traders said the greenback's slump earlier
this week may have been overdone.
The dollar also gained ground after the U.S. government
said it will provide loans to Detroit carmakers crippled by the
economic downturn. The Bank of Japan's interest rate cut to
nearly zero also lent support to the greenback.
"We've seen an extraordinary amount of volatility over the
last few sessions and part of that is due to the fact that it's
year-end and month-end for a lot of banks and institutions,"
said Steven Butler, director of foreign exchange trading at
Scotia Capital in Toronto. "It really is about flows and
The euro also lost ground after the European Central Bank
said on Thursday it would reduce the return it offers to those
banks that hold cash with it, eroding the appeal of the
"What this ECB move did was, for all intents and purposes,
it knocked down the euro's interest rate advantage versus the
U.S. So it made it less attractive to hold euros," said Ronald
Simpson, managing director of global currency analysis at
Action Economics, in Tampa, Florida.
In late afternoon trading in New York, the euro <EUR=> was
down 2.8 percent at $1.3887 after hitting a low of $1.3826,
according to Reuters data. The euro hit $1.4720 on electronic
trading platform EBS on Thursday, its strongest since late
Despite Friday's pullback, the euro is on track post a
weekly gain of more than 3 percent against the dollar.
The euro fell 3.1 percent to 123.79 yen <EURJPY=>.
Analysts said once the year-end flows are out of the way
and investors return to their allocation for the coming year,
the worsening economic backdrop in the eurozone should come
back to weigh on the region's currency.
"The European Central Bank is not done lowering rates yet,"
said Greg Salvaggio, a vice president for trading at Tempus
Consulting in Washington D.C. "That in itself is a negative for
Salvaggio added he expects the euro to trade in a range of
$1.35-$1.37 until the end of the year.
The dollar also found support from news that the U.S.
government will offer up to $17.4 billion in loans to the
ailing U.S. automakers and expects General Motors (GM.N: Quote, Profile, Research, Stock Buzz) and
Chrysler LLC to access the money immediately. See [nPEK94492].
The dollar earlier rose against the yen after the Bank of
Japan on Friday cut interest rates to 0.1 percent, taking the
policy target rates of Japan and the United States to more or
less equal footing. Later the dollar reversed course and was
last 0.3 percent lower at 89.08 yen <JPY=>.
"The notional change in Japan's 'call rate' has made the
Fed's move to a (zero) to 0.25 percent target range look less
severe and the sell off that we saw in dollars post the (Fed's)
decision on Tuesday is now somewhat reversing course," said
Dustin Reid, senior currency strategist at RBS Global Banking
Markets in Chicago.
The yen had surged in recent sessions, climbing to its
strongest level in more than 13 years earlier this week, as
concerns about the global economy prompted more investors to
dump risky positions funded by cheap borrowing in the Japanese
(Additional reporting by Wanfeng Zhou; Editing by Chizu
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