Friday February 13, 2009 - 11:52:28 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen, dollar fall broadly as equities rise; stg rallies
* Dollar and yen fall as global shares rise
* G7 seen unlikely to issue strong message on currencies
* But stg jumps on concerns leaders may discuss its weakness
By Kirsten Donovan
LONDON, Feb 13 (Reuters) - The yen and the dollar fell on
Friday as world stock markets rose on hopes for a U.S.
government programme to subsidise mortgages and as investors
readied for a Group of Seven finance officials' meeting.
The British pound also rallied as investors squared market
positions ahead of the weekend on concerns that G7 leaders may
discuss the currency's weakness, even though finance ministers
and central bankers are keen to avoid upsetting troubled
financial markets with squabbles over exchange rates
The dollar and the yen, which often show an inverse
correlation to investors' risk appetite, lost ground to the euro
and higher-yielding currencies as global equities rose ahead of
the G7 meeting and a long weekend in the U.S.
"It's a risk-on day," said State Street FX strategist Lee
"Not that people are expecting a great deal from the G7 but
there's that lingering thought they might come out with
something substantial. They want to position in case there's a
surprise out of G7 and that surprise would be that they come out
with something significant."
European shares .FTEU3 were up roughly 2.0 percent, buoyed
by the latest U.S. plan which, in a major break from existing
aid programs, would seek to help homeowners before they fall
into arrears, sources familiar with the plan told Reuters
A rising wave of U.S. mortgage delinquencies has saddled the
global banking system with big losses that have led banks to
recoil from lending, choking economies around the world.
By 1118 GMT the dollar had risen 0.7 percent to 91.51 yen
JPY, while the euro was little changed at $1.2868 <EUR=>,
having climbed as $1.2942, according to Reuters data. The single
European currency rose 0.8 percent to 117.76 yen <EURJPY=R>.
The euro also came under pressure against the pound however
after the latest batch of weak economic data from the 16-nation
bloc that could hasten European Central Bank interest rate cuts.
Sterling rallied off 1 week lows hit on Thursday, up 1.8
percent against the dollar <GBP=> at $1.4522. The euro fell 1.8
percent to 88.58 pence <EURGBP=>.
The euro zone economy saw its deepest contraction on record
in the fourth quarter of 2008, data showed, hit by a record weak
performance in Germany as well as deeper-than-expected falls in
output in France and Italy [ID:nBFA000889].
Analysts said that the worse-than-expected reading from the
euro zone had raised concerns that G7 leaders may discuss the
pound's recent weakness against the euro.
"There's a mixture of the poor GDP data and some
short-covering ahead of G7 in the sense that the bad set of euro
zone data might put the UK authorities under pressure at G7 to
do something about the weaker pound," said Investec chief
economist Philip Shaw.
French Economy Minister Christine Lagarde last month called
for Britain to do something about its currency as France worried
that its businesses will lose out to cheaper British goods and
services just when recession is spreading across the
The Australian dollar <AUD=> meanwhile, got an extra boost
to trade up over 1.3 percent against the U.S. dollar after a
last minute deal helped push a stimulus package through
SOARING DEFAULT RISK PREMIUMS WEIGH ON CURRENCIES
ING FX strategist Tom Levinson said the increasing premium
demanded for insuring UK and U.S. government debt posed downside
risks for the dollar and sterling.
Credit rating agency Moody's Investors Services said late on
Thursday that the triple-A credit ratings of both the United
States and Great Britain are "being tested" by the strains
facing the global economy, while countries such as France and
Germany are proving more resistant.
The comments pushed the cost of protecting debt issued by
the British government to an all-time high and by the U.S. to a
near record high.For analysis on the effect of sovereign
default risk on currencies see [ID:nN12466559].
Few expected the G7 finance officials meeting in Rome would
issue a strong message on currencies in general or the yen in
Even though the yen touched its highest in more than 13
years against the dollar in January, at 87.10 per dollar, it has
retreated from that level and stabilised for now.
Japanese Finance Minister Shoichi Nakagawa said the G7
officials would confirm their anti-protectionist stance, but
currency issues would take a back seat. [ID:nT332350].
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