Tuesday April 21, 2009 - 20:59:08 GMT
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FOREX NEWS-Euro up as stocks rise but market anxiety remains
* Euro off 1-month low vs dollar after ZEW survey
* ECB uncertainty, IMF report keep investors cautious
* Dollar gains vs yen as risk appetite, stocks rise
* BoC cuts rates, to set framework for other measures
(Updates prices, adds detail, comment)
By Steven C. Johnson
NEW YORK, April 21 (Reuters) - The euro rose against the
U.S. dollar and yen on Tuesday as data showing sharp
improvement in German investor confidence lifted stock markets
and encouraged market participants to wade back into
Uncertainty about the European Central Bank's next monetary
policy move, however, trimmed euro gains against the dollar,
and an International Monetary Fund warning that banks may have
to write down more than $4 trillion in asset values added a
dash of anxiety to trading.
The euro ended the day up 0.2 percent at $1.2938 <EUR=>,
rebounding from Monday's $1.2883 one-month low but off its
$1.2993 session peak. It added 1 percent to 127.75 yen
<EURPY=>. The dollar was up 0.8 percent at 98.73 yen <JPY=>.
The yen, battered by Japanese economic weakness, struggles
when risk appetite increases and investors feel confident
enough to sell it for higher-yielding currencies and assets.
Sterling rose 1.0 percent to $1.4670 <GBP=> while the
dollar hit a 2-1/2-week peak against its Canadian counterpart
above C$1.25 <CAD=> after Canada's central bank cut interest
rates to a record low but retreated as stock markets advanced.
Investors were heartened on Tuesday by Germany's ZEW survey
of investor sentiment, which rose to 13.0 this month from -3.5,
the first positive reading since 2007, though FX analysts said
the euro's subsequent rise may prove short-lived.
"We got a euro bounce after ZEW and there's consolidation
after a horrible day yesterday in stocks, but my view is this
is an opportunity to sell euros," said T.J. Marta, chief market
strategist at Marta on the Markets in Scotch Plains, New
Analysts said an IMF report that banks worldwide will have
to write down assets by $4.1 trillion to restore global
stability suggests the financial crisis is far from over, which
will boost safe-haven demand for the dollar. For more
Euro gains are also likely to be limited by uncertainty
about what unconventional policy steps, if any, the ECB takes
to combat a euro zone recession, Marta said.
The ECB is expected to cut interest rates from 1.25 percent
to 1.0 percent in May, but it's unclear whether it will follow
the Federal Reserve and other central banks and create money
via other means such as buying corporate or sovereign debt.
Either way, Marta said the euro is likely to suffer. "If
the ECB comes together on quantitative easing, the euro will go
down because the U.S. has already started," he said. "If they
don't, the euro will be punished because the ECB will be
accused of not reacting to the crisis."
Quantitative easing is the process of flooding the banking
system with money when interest rates are already at or near
zero in order to stimulate growth and boost lending.
Dustin Reid, currency strategist at RBS Global Banking &
Markets, said the euro could fall back to $1.20 by mid-year.
The Bank of Canada cut rates to 0.25 percent and said it
will outline a strategy on Thursday for taking possible
unconventional measures. Scotia Capital currency strategists
said the bank is moving toward "more unorthodox and arguably
more risky monetary policy methods."
The U.S. dollar rose to C$1.2504 <CAD=>, its highest since
early April, but retreated as stock markets gained and last
traded down 0.2 percent tat C$1.2360.
"The BoC undermined the currency a bit, and earlier, we had
equities looking strained as some of the financial earnings had
fallen short of expectations, but stocks' reversal higher has
helped (the Canadian dollar recover)," said George Davis, a
currency strategist at RBC Capital Markets in Toronto.
(Additional reporting by Vivianne Rodrigues)
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