Tuesday January 27, 2009 - 11:27:40 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro rises, supported by strong Ifo; yen slips
* Euro hits 1-week high vs dollar, yen; risk aversion ebbs
* Japan aid to firms boost share markets
* Euro supported by surprising rise in German Ifo
(Adds comment, updates prices)
By Naomi Tajitsu
LONDON, Jan 27 (Reuters) - The euro hit a one-week high
versus the dollar and the yen on Tuesday on a surprise rise in
German corporate sentiment, while easing risk aversion kept the
Japanese currency under broad selling pressure.
German's Ifo economic research institute said that its
business climate index rose to 83.0 in January from an upwardly
revised 82.7 in December, exceeding forecasts and posting its
first improvement in eight months [ID:nBEB002299].
The figure suggested that businesses are slowly gaining
confidence following the government's announcement of an
economic stimulus package, although analysts warned against
becoming too optimistic about the German economy.
"It's a short-term relief to see that there hasn't been a
further deterioration from the December reading but whether it
is sustainable is rather debatable," said Audrey Childe-Freeman,
senior FX strategist at Brown Brothers Harriman in London.
Pointing out that the rise was likely due to a weaker euro
<EUR=> at the start of the year and lower oil prices, she added:
"We can't get carried away. The core data for Germany remains
poor and the outlook for the German economy remains rather
The yen fell broadly after a pledge by the Japanese
government to inject capital into ailing companies prompted some
investors to take on riskier trades, which helped to support the
euro and sterling.
A slight improvement in risk demand prompted some selling in
the dollar ahead of a two-day policy meeting by the Federal
Reserve that begins on Wednesday. Investors are waiting for the
post-meeting statement to see whether the U.S. central bank will
implement more quantitative easing measures to help the economy.
By 1017 GMT, the euro <EUR=> traded 0.8 percent higher at
$1.3270, having climbed as high as $1.3328, its strongest in a
week, after the Ifo figures were released. While the pair pulled
away from the high, it kept its distance from a six-week low
around $1.27 hit late last week.
The euro traded 1 percent higher at 118.40 yen <EURJPY=R>
after hitting the day's high of 119.45 yen, a level last reached
on Jan. 19.
The yen stumbled due to improving risk demand after Japan
launched a $16.7 billion scheme to buy shares in firms whose
future has been threatened by the financial crisis [ID:nT89837].
"The news from Japan is positive for risk appetite, and has
provided a firm undertone in the market," said Anders Soderberg,
chief currency strategy at SEB Merchant Banking in Stockholm.
The low-yielding yen often takes its cue from perceived
swings in investors' risk appetite and has tended to fall
against higher-yielding currencies when risk tolerance
The euro was supported, but gains were capped as European
shares reversed early gains to trade 0.5 percent lower .FTEU3,
having failed to take a cue from a rally in Tokyo stocks.
Improving risk appetite pushed the yen lower across the
board, boosting the dollar by as much as 1 percent to a one-week
high of 90.07 yen <JPY=>, before pulling back to 89.42 yen.
Sterling and higher-yielding currencies like the Australian
and New Zealand dollars each rose around 1.5 percent against the
yen. The pound <GBP=D4> rose as high as $1.4242, pulling further
away from a 23-year low of $1.35 hit last week.
Still, analysts said a further improvement in risk appetite
was unlikely, given persistent stress in global financial
sectors and the global economy's decline into recession.
Market participants were anticipating the Fed's policy
statement due on Wednesday, when the central bank is widely
expected to keep rates on hold in a zero-0.25 percent range
following an aggressive campaign of rate cuts.
Analysts expect the Fed will suggest that rates will stay
low for some time, and they will scrutinise its statement for
clues into how policymakers may expand support for credit
markets as the central bank tries to steer the economy away from
a deep recession.
In addition, market participants are waiting to see how
seriously officials are looking into the option of buying up
domestic government bonds, given an expected surge in debt
issuance to fund economic stimulus plans.
(Additional reporting by Veronica Brown; Editing by Ruth
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