Monday December 22, 2008 - 11:54:53 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro gains vs dlr, yen in volatile holiday trade
* Euro gains broadly, trades around $1.40 <EUR=>
* Yen weakens in wake of Friday's BOJ rate cut
* Scepticism about U.S. auto bailout keeps dlr on back foot
* ECB policymakers divided on near-term policy action
(Adds comment, updates throughout)
By Naomi Tajitsu
LONDON, Dec 22 (Reuters) - The euro rose broadly in holiday
thinned trade on Monday as a dim view of the U.S. economy kept
the U.S. currency on the back foot, while the yen struggled in
the wake of the latest Japanese interest rate cut.
The euro climbed in jerky trade, recovering from heavy
losses against the dollar late last week as market participants
were sceptical about whether a U.S. bailout plan for the
nation's comatose automakers would help steer the economy out of
a deep recession.
Traders said that volumes were razor-thin in the lead-up to
the Christmas and year-end holiday season, which was aggravating
even the slightest moves in the currency markets. Still, many in
the market said that demand for dollars remained low.
"The dollar view is so opaque at the moment, and the risk
reward is at this time of year is not worth it unless you really
have to trade," said Maurice Pomery, head of forex at IDEAglobal
Traders said an announcement by China's central bank to
lower banks' lending and deposit rates by 27 basis points -- its
fifth rate cut since September -- had limited initial impact on
currency markets [ID:nPEK256295]
By 1137 GMT, the euro rose 0.2 percent to $1.3951 <EUR=>.
The pair recovered from a fall to as low as $1.3824 on
electronic trading platform EBS on Friday to clock its biggest
daily percentage loss against the dollar in almost two months.
Earlier on Monday, the pair rose roughly 1.5 percent to a
session high of $1.4123, but remained a fair distance from
$1.4720 touched last week on EBS, its highest since late
Against the yen, the euro was up 1 percent at 125.38 yen
<EURJPY=>, while it climbed as high as 95.24 pence against
sterling <EURGBP=>, inching closer to a record high of 95.56
pence hit last week.
Despite its losses against the euro, the dollar <JPY=> rose
0.9 percent to 89.90 yen <JPY=>.
The yen struggled broadly after the BOJ cut key interest
rates to near zero on Friday, which further reduced the
currency's already low interest rate level to 0.1 percent.
This helped to push higher-yielding currencies like the
Australian <AUDJPY=R> and New Zealand <NZDJPY=R> dollars up
roughly 1 percent each against the Japanese currency.
GRIM US OUTLOOK
Dealers said the U.S. rescue of General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz)
and Chrysler LLC [CBS.UL] had averted a crisis for now, but
uncertainty remained over the companies' restructuring plans in
return for the bailout would impact the economy already in a
deep and long recession [ID:nPEK94492]
"The auto industry bailout removed one risk factor for the
market, but the majority of market players see corporate profits
to decline significantly in coming quarters," said Geoffrey Yu,
strategist at UBS in London.
"We see more risks and more aggressive action from
policymakers as the economic situation is not improving."
Market participants said that a grim U.S. economic outlook
would continue to keep the dollar on the back foot, following
its slump after the Federal Reserve cut benchmark interest rates
to a historic low near zero last week.
With interest rates and the impact of the global recession
continuing to drive currency movements, investors looked for
more clues into how aggressively central banks around the world
will keep cutting rates.
Recent comments by European Central Bank policymakers have
suggested the central bank may be divided on the near-term
course of action on rates.
ECB council member Miguel Angel Fernandez Ordonez said in an
interview on Sunday that the ECB is likely to cut interest rates
next month if inflation expectations are well below its 2
But ECB Executive Board member Lorenzo Bini Smaghi warned
about the risks of monetary policy being too lax, according to
Rome daily Il Messaggero [ID:nLL383892].
Bank of England Deputy Governor John Gieve and policy board
member Tim Besley on Monday both said that monetary policy alone
could not help the UK economy avoid some of the worst
consequences of the global credit crunch [ID:nLM559877].
BOJ Governor Masaaki Shirakawa said on Monday that Japan's
economy was deteriorating and conditions were likely to become
more severe. [ID:nTKG003163]
(Additional reporting by Tamawa Desai; Editing by Andy
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