FOREX NEWS-U.S. dollar, yen surge as risk appetite diminishes
Thu Jan 29, 2009 4:31pm EST
* Yen, dollar gain as weak U.S. data stokes risk-aversion
* Euro tumbles on growth fears, Soros comments
* U.S. stimulus, Fed policy seen leading to recovery (Updates prices, adds comment, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 29 (Reuters) - The dollar and yen climbed broadly on Thursday as bleak U.S. economic data and sharp stock market losses prompted investors to pare back risky trades even as governments have embraced more monetary and fiscal stimulus to boost growth.
The euro <EUR=> fell more than 1 percent against the dollar, trading below $1.30, and plunged against the yen after billionaire investor George Soros told an Austrian newspaper that the currency may not survive without a European Union plan to deal with toxic assets. For details, see [ID:nN29299007]
A warning from European Central Bank President Jean-Claude Trichet that the ECB could push interest rates below 2 percent and use other measures to boost growth also hit the euro, as did data showing the biggest monthly jump in German unemployment in four years.
"This is basically a liquidation of euros, with Soros' comments the latest catalyst," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
"There has been an unwinding of the risk trade as the data came in lousy, stocks (were) dumped, and risk sentiment is reversed. We're kind of in this risk-on, risk-off environment," he added.
In late trading, the euro was down 1.3 percent at $1.2962 after earlier falling to $1.2934, according to Reuters data. Against the yen, the euro <EURJPY=> was off 1.9 percent at 116.52. The dollar fell 0.6 percent to 89.88 yen <JPY=>.
The yen and dollar tend to advance when risk appetite fades as investors unwind trades financed with near-zero rates in those currencies.
In addition, the dollar has attracted safe-haven buyers despite another batch of grim data that underscored the weakness of the U.S. economy.
WEAK U.S. DATA
Reports showed U.S. jobless claims hitting a record high, orders for big-ticket items such as appliances falling for a fifth straight month in December and sales of new homes plunging 14.2 percent to an all-time low.
But plans for robust U.S. fiscal spending and the Federal Reserve's move last month to bring interest rates down near zero have spurred hopes of a recovery in the second half of 2009.
The Fed said on Wednesday it was prepared to buy long-dated Treasury debt, but did not offer details on the timing of any such purchases.
"The market must clear before we can have a recovery and the plans are in place by the Fed to lower rates and provide liquidity," said Brian Taylor, head currency trader at M&T Bank in Buffalo, New York. "What the U.S. is doing is far ahead of other countries right now."
That contrasts with the ECB approach, which has been slower to reduce rates. Trichet has indicated that the next rate move would not come until March, though in remarks to CNN on Thursday, he said rates may still fall below the current 2 percent, adding officials could use unconventional means to boost growth.
Sterling rose 0.7 percent against the dollar to $1.4312 <GBP=>, even with weak UK data. The euro fell 2.0 percent to 90.55 pence <EURGBP=>.
The New Zealand dollar <NZD=> fell to US$0.5128, the lowest since December 2002, according to Reuters data, after the central bank cut interest rates by 150 basis points to 3.5 percent and hinted at more cuts.
Earlier in the session, the Swiss franc slipped after the Swiss National Bank Chairman Jean-Pierre Roth said he has not yet seen any "overshooting" of the currency, although it is ready to act if it does happen. The dollar last traded at 1.1523 francs <CHF=>, little changed on the day. (Additional reporting by Steven C. Johnson and Nick Olivari; editing by Gary Crosse)
Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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