Monday March 30, 2009 - 21:27:18 GMT
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Reuters - www.reuters.com
FOREX NEWS-Auto, bank worries lift safe-haven dollar, yen
* U.S. auto, financial-sector fears dull risk appetite
* Dollar, yen up broadly, euro slides below $1.32
* Heavy event risk this week as ECB meeting looms
(Updates prices, adds quotes, details)
By Wanfeng Zhou
NEW YORK, March 30 (Reuters) - The dollar and yen rose on
Monday as fears of bankruptcy for U.S. automakers General
Motors and Chrysler and persistent worries about banks
worldwide boosted safe-haven flows into the two currencies.
The euro continued to retreat from last week's two-month
high above $1.37, falling below $1.32 after Spain was forced to
take over a regional savings bank, while Standard & Poor's cut
the credit ratings of Hungary and Ireland.
Despite the United States being at the center of global
financial crisis, the dollar has gained in recent months as
anxious investors sought shelter in U.S. Treasury debt.
The yen has also served as a refuge in times of trouble,
rising as traders repatriate funds from riskier assets.
"(There) is a reemergence of risk aversion and that has
obviously been spurred on by what's going on with both GM and
Chrysler," said Matt Esteve, a foreign exchange trader at
Tempus Consulting in Washington. "With markets around the world
tumbling ... investors are flocking back to the dollar and also
to the Japanese yen."
In late New York trading, the euro was down 0.8 percent at
$1.3189 <EUR=>, off a session low of $1.3115 -- its lowest
level since March 18 -- according to Reuters data. Against the
Japanese yen, the euro lost 1.4 percent to 128.22 yen
The dollar shed 0.6 percent to trade at 97.22 yen <JPY=>,
with risk aversion and Japan's fiscal year-end boosting demand
for the yen.
Wall Street stocks closed sharply lower on Monday after the
Obama administration rejected funding pleas from General Motors
(GM.N: Quote, Profile, Research, Stock Buzz) and Chrysler and forced out GM's CEO, pushing the
carmakers closer to possible bankruptcy.
The news added to worries stoked over the weekend when U.S.
Treasury Secretary Timothy Geithner said some banks will need
"large amounts of assistance." For details, see
"While (Geithner) hasn't actually asked Congress for
additional funds, it was pretty obvious that that's what he was
preparing us all for," said Chris Gaffney, vice president at
EverBank World Markets, in St. Louis, Missouri.
"That combined with news out of Europe that looks to push
the (European Central Bank) into maybe more rate cuts caused
the dollar to run up and the euro to sell off," Gaffney added.
ECB MEETING LOOMS
The ECB is widely expected to cut interest rates to 1
percent on Thursday. Markets are keen to see if it will follow
the U.S., British and Japanese central banks in buying
government or corporate debt to boost the availability of
ECB President Jean-Claude Trichet said on Monday that no
such decision has yet been made. He also said euro-zone growth
is likely to remain sluggish this year before starting to
rebound in 2010. [ID:nLU207331]
Dan Cook, a senior market analyst at IG Markets in Chicago,
said the ECB may not be able to resist adopting unorthodox
monetary policy for long.
"We still look to dollar strength as Trichet is eventually
forced to move into this type of bond buying," he said.
In the latest sign of stress in the euro zone, Spain was
forced to bail out regional savings bank Caja Castilla la
Mancha, its first bank rescue since the financial crisis
Also on Monday, S&P's cut Ireland's prized 'AAA' credit
rating to 'AA+' and warned it could drop further. The ratings
agency also lowered Hungary's credit rating to one level above
Win Thin, senior currency strategist at Brown Brothers
Harriman, said while expected ratings downgrades in 2009 for
some euro zone members is of course negative for the region,
the currency market has already discounted much of this.
"Bigger news would be if the agencies started to downgrade
some of the stronger credits such as Germany and France," he
said in a note.
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