Tuesday March 24, 2009 - 20:51:35 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar firms as U.S. bank plan optimism wanes
* Dollar gains as optimism on Geithner plan fades
* Sterling/dlr hits 6-week high on CPI data, King comments
* Euro pressured as policy-makers hint at euro rate cuts
(Adds comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, March 24 (Reuters) - The dollar rose on Tuesday
as optimism about a U.S. government plan to remove bad assets
from banks' balance sheets dwindled, prompting investors to
resume safe-haven bets on the greenback.
The dollar also gained support from a growing view that the
Federal Reserve's quantitative easing -- buying U.S. Treasury
debt while massively expanding Uncle Sam's balance sheet --
would not undermine the currency as many initially thought.
Sterling, meanwhile, posted strong gains, hitting a
six-week high against the dollar after UK inflation rose
unexpectedly in February and Bank of England Governor Mervyn
King said the central bank's quantitative easing program may be
reduced if it is successful. For details, see [ID:nLO953922]
"We're seeing a pullback in (U.S.) equities from
yesterday's steep gains and that has caused a pause in the
selling of the dollar. So this is the risk-aversion theme once
again," said Ken Landon, a currency strategist at JPMorgan
Chase in New York.
"The bloom has come off the euro, in particular, and its
gains had been overextended anyway. When the Fed announced
quantitative easing last week, people rushed to sell the
dollar, but I would have thought commodity-based currencies
such as the Aussie would have been much better alternatives
than the euro," Landon added.
Although quantitative easing could lead to inflation as
money supply expands, analysts said the other option is not to
do anything, which could have more dire consequences for the
dollar due to deflation and economic stagnation.
EURO, YEN UNDER PRESSURE
In late afternoon New York trade, the dollar was up 0.7
percent on the day at 97.71 yen <JPY=>, but off the day's high
of 98.56 yen, according to Reuters data.
The euro fell 0.5 percent to 131.55 yen <EURJPY=EBS>,
having earlier struck 134.50 yen on trading platform EBS, its
highest level since October.
The yen remained under pressure as continuing worries that
the currency is overvalued and concerns about Japan's weak
economy, have eroded the unit's safe-haven status.
The euro dropped 1.2 percent against the dollar to $1.3462
<EUR=EBS>, down from the 2-1/2-month peak of $1.3739 touched
last week on EBS.
The euro was also under pressure as euro zone policy-makers
suggested interest rates in the region could fall further, just
as data showed manufacturing and services sector activity
continued to contract significantly.
The single euro zone currency was also undermined by rising
expectations that the European Central Bank may be the next to
adopt quantitative easing.
ECB Vice President Lucas Papademos said on Tuesday
quantitative easing could be considered by the bank if more
traditional means have been exhausted. [ID:nFAE002910]
"If that's the case, then why would you buy euro/dollar?
Certainly, the ECB is hoping that it won't have to implement
quantitative easing," said Robert Blake, senior currency
strategist, at State Street in Boston.
"And if it does, there are doubts the ECB could actually
pull it off given the legal and institutional hurdles," he
Among other currencies, sterling rose to $1.4778, the
highest since Feb. 10. The pound <GBP=> last traded up 0.7
percent at $1.4671.
In Washington, U.S. Treasury Secretary Timothy Geithner and
Federal Reserve Chairman Ben Bernanke testified before Congress
about bailed-out insurer American International Group Inc and
regulation. [ID:nN24335995] Their testimony, however, had a
muted impact on the currency market.
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