FOREX NEWS-Dollar up as anxiety increases, euro slumps
Mon Apr 20, 2009 2:30pm EDT
* Euro trades at one-month lows versus dollar
* Stocks tumble, boosting safe-haven demand for greenback
* Worries about BoA credit quality unnerves investors
* ECB remarks add uncertainty, weigh on euro (Refiles to fix typographical error in headline) (Recasts; adds comment, updates prices, changes byline)
By Steven C. Johnson
NEW YORK, April 20 (Reuters) - The dollar rallied broadly on Monday, pushing the euro below $1.29 for the first time in a month, as renewed bank sector worries battered Wall Street and increased the greenback's appeal as a safe store of value.
U.S. stocks fell more than 3 percent, following European equities. Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) plunged 23 percent despite a profit gain after it reported a big increase in reserves for bad loans.
That dulled a sense of optimism that had been building in recent weeks and prompted investors to avoid most major currencies in favor of the dollar, which tends is seen as the best store of value when economies worldwide are shrinking.
"Investors realize that we're in this for the long haul. Bank news is uncertain enough that risk aversion resurfaces at the slightest hint of weakness," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
Analysts also said mixed messages from the European Central Bank about its next monetary policy move also weighed on the euro, which was last down 0.9 percent at $1.2920 <EUR=> after earlier hitting a one-month low at $1.2888. It also fell 2.2 percent to 126.40 yen <EURJPY=>.
Tempus Consulting trader Matt Esteve said the euro could trade as low as $1.27 in the near term.
The dollar shed 1.3 percent to 97.85 yen <JPY=>, which also tends to see safe-haven flows when market anxiety rises.
The dollar rose against most other major currencies as well, with sterling dipping 1.7 percent to $1.4537 <GBP=>, its weakest level in nearly three weeks, and the Australian dollar tumbling 3.3 percent to $0.6976 <AUD=>.
Bank of America reported a profit of 17 cents a share, beating analysts' estimate of 4 cents a share, but that was overshadowed by a surge in troubled loans. [ID:nN20380236]
Better-than-expected earnings from JP Morgan (JPM.N: Quote, Profile, Research, Stock Buzz) and Citigroup (C.N: Quote, Profile, Research, Stock Buzz) last week helped assuage concerns over the U.S. banking sector's health, and traders are awaiting reports later this week from Wells Fargo and Bank of New York-Mellon.
By retreating back to $1.29, though, the euro fell below its level on March 18, the day the Federal Reserve announced plans to buy-long term government debt. That led investors to dump the dollar amid fear of an oversupply of greenbacks.
Now, markets expect the ECB may also have to resort to flooding the banking system with money to promote lending and growth, though what method the ECB might use remains in doubt.
ECB President Jean-Claude Trichet hinted on Sunday that authorities could bring rates down a quarter-percentage point to 1 percent in May.[ID:nT138276].
While some ECB officials have said that is about as low as interest rates can go, others have appeared to favor a cut below 1 percent.
ECB governing council member Ewald Nowotny was quoted as saying on Monday the central bank should look at what it can do beyond rate policy to stimulate growth. [ID:nWEA7326]
Whatever the ECB decides, it will still lag the Fed in addressing the crisis, said Brown Brothers Harriman strategist Marc Chandler, and that will keep the euro under pressure.
"The range of options being discussed pales in comparison to what the U.S. has," he said, noting that political hurdles will likely prevent the ECB from buying corporate or government debt as other central banks have done.
"As serious as the U.S. problems are," he said, "it seems we are still light years ahead of others in addressing them." (Additional reporting by Vivianne Rodrigues; Editing by Padraic Cassidy)
Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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