Thursday January 8, 2009 - 13:53:38 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar, yen firm on risk aversion; BoE cuts rates
Thu Jan 8, 2009 8:28am EST
* Dlr, yen benefit from risk aversion
* Stg bounces as BoE delivers 50 bps rate cut, as expected
* Euro slides, weak data keeps pressure on ECB
(adds quotes, updates prices)
By Veronica Brown
LONDON, Jan 8 (Reuters) - The dollar and yen rose at the expense of higher-yielding currencies on Thursday as falling shares tempered risk demand, while the euro came under selling pressure as dismal data highlighted concerns about a deteriorating euro zone economy.
Sterling bounced to three-week highs versus the dollar and the euro after the Bank of England met market expectations with a 50 basis point interest rate cut to 1.5 percent, continuing attempts to buffer the UK economy from a deep recession.
The dollar built momentum versus higher-yielding currencies as worries about the global economy slapped oil prices down some 12 percent on Wednesday, pressuring commodity currencies like the Australian and New Zealand dollars lower.
This helped the U.S. currency recover some losses suffered in the previous session after a disastrous reading of U.S. employment, but the dollar fell against the yen, which benefited from risk aversion as share prices in Asian and Europe fell.
The dollar hit a session low versus the yen after disappointing sales figures from Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research, Stock Buzz), the world's largest retailer, which also cut its quarterly earnings outlook on Thursday [ID:nL8478360].
The Dow Jones industrial average .DJI had fallen 244.68 points, or 2.71 percent, to 8,770.42, while stock futures pointed to a lower Wall Street open later on Thursday.
Figures on Wednesday showed a 693,000 decline in U.S. private jobs in December, hitting home the view the U.S. economy is deteriorating fast with global reverberation.
"The market is very nervous. You get a couple of good days where people come out of the woodwork and then the Dow falls and everyone is away again," said Lee Ferridge, currency strategist at State Street Global Markets.
"Much will depend on the Dow today, if it comes back we'll see the commodity currencies come back," he added.
By 1245 GMT, the dollar .DXY was little changed against a currency basket at 82.073. Yen strength pushed the euro down 1.4 percent to 124.44 yen , while the dollar was down 1.3 percent at 91.38 yen . The Australian dollar was down 1 percent at $0.7033 .
The euro traded 0.1 percent lower at $1.3613, after falling sliding to a session low of $1.353 according to Reuters data. The pair hovered within range of a three-week low around $1.33 hit earlier in the week.
The euro was weighed after figures showing an unprecedented 10.6 percent month-on-month fall in German exports in November as global demand for cars and other manufactured products have plummeted due to a global recession [ID:nL88871].
A series of weak euro zone economic data further fuelled the view that the recession is deepening, which may require faster interest rate cuts by the European Central Bank. The euro zone's business climate declined much more than expected to an all-time low in December [ID:nL7619533].
CABLE TURNS TO RUBBER
Sterling rose against the euro and dollar, while UK rate futures fell after the Bank of England's 50 basis point cut fuelled the view that rates may not be cut so aggressively going forward.
The BoE said in a statement that "the substantial depreciation in sterling over recent months may help to moderate the impact on UK net exports of the slowdown in global growth." But it added that a weaker pound will raise the cost of imports.
Sterling rose as high as $1.5290 , according to Reuters data. The euro was down more than 1 percent, hitting a low of 88.81 pence , its lowest since mid-December.
"I think it's pretty likely that it was sterling that decided them to slow down the pace of cuts," said Brian Hilliard, economist at Societe Generale.
"I still think there's more (rate cuts) in the pipeline. Notable by its absence was any comment on quantitative easing. I don't think it's actually on the agenda until they get rates down to close to zero."
British front month interest rate futures fell to turn negative after the decision. Front month contracts traded as much as 4 ticks lower, having been between 6 and 8 ticks higher before the announcement.
(Additional reporting by Naomi Tajitsu; Editing by Ruth Pitchford and Andy Bruce)
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