Wednesday May 6, 2009 - 10:46:15 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen gains as nerves set in about US stress tests
* Yen gains as investors pare back risk exposure
* Bank of America deemed to need $34 bln more capital-source
* Markets wary before US stress tests, ECB and BoE meetings
* Euro dips vs dlr as caution outweighs firmer EZ PMI data
(Updates prices, adds quotes)
By Jessica Mortimer
LONDON, May 6 (Reuters) - The yen gained broadly on
Wednesday, while the dollar edged up versus the euro, as
nervousness ahead of U.S. stress test results on banks
encouraged investors to pare back exposure to risk.
Concerns about these results, which are due on Thursday,
were heightened after a source familiar with the tests said Bank
of America required as much as $34 billion in additional capital
This prompted investors to buy back the yen and the dollar
-- which typically gain in times of heightened risk aversion --
after recent optimism that the global economy may be over the
worst had led them to take on more risk.
The single currency pared some losses after a
better-than-expected survey on the euro zone services sector,
but wariness about event risks this week kept it in negative
territory against both the U.S. and Japanese currencies.
As well as the stress tests, markets were cautious ahead of
Thursday's policy decisions by the European Central Bank and the
Bank of England and key U.S. jobs data on Friday.
Later on Wednesday, investors will be watching out for U.S.
ADP unemployment data, which could provide some clues on how bad
the state of the U.S. jobs market is.
"There is still some bullish news around and there have been
some bright sparks recently, but people are wary that there
could be things waiting around the corner to trip things up,"
CMC Markets analyst James Hughes said.
"The stress test results will be key as there is still a lot
of underlying nervousness surrounding the banking sector," he
At 1025 GMT, the euro fell 0.6 percent against the yen to
130.86 yen <EURJPY=R>, while the dollar lost 0.6 percent to
98.27 yen <JPY=>.
Against the dollar, the euro <EUR=> fell 0.1 percent on the
day to $1.3312, well below the one-month high of $1.3439 touched
on trading platform EBS on Tuesday.
Data continued to suggest that the global economy is showing
tentative signs of recovery.
The euro zone purchasing managers' index for services was
unexpectedly revised up to post its biggest one-month rise since
December 2001, while the equivalent survey for the UK showed the
slowest contraction in the sector in eight months. See
[ID:nLAG003418] and [ID:nL6157293].
The better euro zone data and a warning from China's central
bank that U.S. quantitative easing measures could cause the
dollar to weaken briefly pushed the euro into positive territory
against the dollar.
But it was soon pegged back, with investors remaining
nervous ahead of Thursday's policy announcement by the European
Central Bank (ECB), as well as one from the Bank of England
The ECB is expected to cut interest rates to a record low of
1 percent, while the BoE is seen holding rates at 0.5 percent,
also a record low, though the main focus will be on whether the
ECB announces any additional unconventional policy measures.
Analysts noted, however, that beyond this week the mood is
likely to remain buoyant and a rally in riskier assets could
"Evidence of green shoots in the global economy is still
present, with improvements in leading economic indicators and in
key areas such as the U.S. housing market, and there are no
signs that things will turn the other way," Stockholm-based SEB
currency strategist Johan Javeus said.
(Reporting by Jessica Mortimer; editing by Stephen Nisbet)
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