Monday December 22, 2008 - 21:15:19 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar firms vs yen, buoyed by Japan data, BoJ caution
* Dollar up vs yen as BoJ warns of further export woes
* Euro gains; doubts about U.S. auto bailout loom
* Market expects ECB rate cut; policy-makers seem divided
(Updates prices, adds comment, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 22 (Reuters) - The U.S. dollar recovered some
ground against the yen on Monday after sharp losses last week,
boosted by data showing Japanese exports slumping and by a
warning from the Bank of Japan that its economy has
deteriorated and is likely to get worse.
The dollar slipped against the euro in holiday-thinned
trading as demand for the U.S. currency slowed, with credit
conditions easing further. Improved market liquidity came as a
result of the Federal Reserve's aggressive interest rate cut
last week including a slew of measures undertaken by central
banks to ease the global credit crunch.
"The dollar's gains against the yen were the residual
effects of the Bank of Japan's rate cut last week, its warnings
about excessive yen strength, and today's bad economic data in
Japan," said Omer Esiner, a senior market analyst at Ruesch
International in Washington.
"But overall we are just seeing a slowing in the dollar's
decline against the yen and not a reversal of the yen's
strength. Today's price action reflects market consolidation,
more than anything else after a volatile week."
The dollar rose above 90 yen <JPY=> for the first time in
nearly a week after BoJ Governor Masaaki Shirakawa said yen
strength and a global slowdown may reduce Japanese exports
further even after a record plunge in November. He added that
Japan's economic conditions are likley to become more severe.
For details, see [ID:nT298327].
By late trading, the dollar rose 0.9 percent to 89.94 yen,
while the euro gained 1.1 percent to 125.49 yen <EURJPY=>.
"All Asian exporters are at risk in this global economic
slowdown, but Japan is at the top of the list," said Dustin
Reid, senior currency strategist at RBS Global Global Banking &
Markets in Chicago. "The stronger yen has been playing havoc
for Japanese exporters, and the auto companies in particular
are likely to be significantly affected."
CHINA RATE CUT, U.S. AUTO BAIL-OUT
So far this year, Japan's currency was up 19 percent
against the dollar and nearly 23 percent versus the euro. Last
week, the Bank of Japan cut interest rates to near zero, which
helped slow the yen's rally.
In China, its move to cut lending and deposit rates by 27
basis points -- its fifth cut since September -- shed more
light on the severity of the global slump. [ID:nPEK256295].
The euro rose 0.3 percent to $1.3953 <EUR=> but was well
off its session peak of $1.4123. Sterling fell 0.5 percent to
$1.4842 <GBP=>, while the euro rose 0.8 percent to 94.00 pence
<EURGBP=>, near a record high of 95.56 pence touched last week.
Warnings from Bank of England policy-makers that interest
rate policy may not be enough to boost the economy renewed
pressure on the pound, which has shed more than 25 percent
against the euro and dollar this year. [ID:nLM559877].
But that run lower may run out of steam, according to
strategists at Bank of America who recommend buying sterling
against the dollar at $1.4750 ahead of an expected rise to
In the United States, doubts about whether a bailout of
U.S. automakers would lift the economy out of recession has
limited the dollar's gains. On Friday, the government announced
emergency loans for General Motors (GM.N: Quote, Profile, Research, Stock Buzz) and Chrysler.
While the U.S. move averted a crisis for now, traders said
uncertainty over the auto companies' restructuring plans has
raised worries about the long-term economic impact.
Last week, the Fed cut benchmark interest rates to near
zero, underscoring the depth of the economic crisis and
undermining support for the dollar.
Investors are also looking for the European Central Bank to
cut interest rates, currently at 2.5 percent, in January,
though ECB executive board member Lorenzo Bini Smaghi warned
about the risks of monetary policy being too lax, according to
the Rome newspaper Il Messaggero [ID:nLL383892].
(Additional reporting by Steven C. Johnson)
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