Monday March 23, 2009 - 21:14:43 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar, yen slide as US bank plan blurs haven allure
* Geithner unveils plan to unfreeze toxic assets
* Trichet says ECB reluctant for rates to fall to zero
* U.S. stocks soar, helped by bank rescue scheme
(Adds comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, March 23 (Reuters) - The dollar and yen fell on
Monday as investors reduced safe-haven bids on both currencies
after the U.S. government unveiled a plan to unlock toxic
assets from banks' balance sheets in an effort to pull the
economy out of recession.
Higher-yielding currencies such as the Australian and New
Zealand dollars, meanwhile, gained sharply, along with soaring
U.S. stocks, as Treasury Secretary Timothy Geithner outlined
details of the bank rescue plan. For full story, see
"This is more about risk appetite with U.S. stocks up after
the Geithner announcement," said Brian Kim, currency strategist
at UBS in Stamford, Connecticut. "So we're seeing the euro
rally against the dollar on this, along with the aussie and the
In late afternoon trading, the euro rose 0.5 percent
against the dollar to $1.3648 <EUR=> after trading as low as
$1.3487, according to Reuters data.
Earlier, the euro had risen as high as $1.3735 after
European Central Bank chief Jean-Claude Trichet signaled in a
newspaper interview published on Monday that the ECB remained
wary of interest rates falling to zero. [ID:nLM557188]
That should enhance the attractiveness of euro zone
instruments over those in the United States and Japan, where
interest rates are already near zero.
The yen, on the other hand, came under heavy selling
pressure, falling to a five-month low against the euro. The
single euro zone currency jumped on electronic trading platform
EBS to 132.56 yen <EURJPY=EBS>, the highest since October 2008.
The euro last traded at 132.45 up 1.7 percent.
Against the yen, the dollar rose 1.2 percent to 97 yen
The low-yielding dollar and yen are viewed as safe-haven
currencies with minimal volatility. When stocks plunge and the
risk barometer shoots up, investors repatriate funds, closing
out losing trades that were financed by low rates in both the
dollar and yen.
Sterling firmed, rising 0.8 percent against the dollar to
$1.4574 <GBP=>, despite the Bank of England's recent move
toward quantitative easing as the UK currency benefited from a
jump in equities following the Geithner news.
Sterling also hit a 3-1/2-month-high at 141.85 yen
<GBPJPY=R>, while the Australian dollar <AUDJPY=R> rose to
68.37 yen, its highest since November 2008.
While the Geithner announcement was a short-term negative
for the safe-haven dollar, some analysts believe the bank
bailout plan would be not be as detrimental for the greenback
in the long term as many market watchers had initially
The Treasury said the government would invest $75 billion
to $100 billion from its bailout fund to partner with private
investors and buy troubled assets at the heart of the financial
crisis. The Federal Deposit Insurance Corp and the Federal
Reserve will also be tapped to offer further financing. For
details, see [ID:nSP429491] and [ID:nWEN6344]
"A very positive part of this plan as it concerns the
dollar is that the amount of public capital used will be fairly
limited particularly when compared to the size of (government
debt purchases under) the FOMC statement last week," said Dan
Cook, market analyst at IG Markets in Chiacgo.
"By using public capital only to the extent required to
attract private capital, it is hoped that the U.S. taxpayer
will not be fully liable for the amount of these assets," he
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