Wednesday June 3, 2009 - 11:42:12 GMT
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Reuters - www.reuters.com
FOREX NEWS-Asian comments lift dollar from 2009 lows vs euro
* Dollar climbs on Asia comments on FX reserves
* Euro/dollar, cable reverse climb to 2009 highs
* Asian countries seen continuing to buy U.S. Treasuries
(Releads, adds comment, details, updates throughout)
By Naomi Tajitsu
LONDON, June 3 (Reuters) - The dollar on Wednesday rebounded
from its lowest levels this year against the euro after Asian
monetary sources said they would keep buying U.S. Treasuries
even if the U.S. credit rating were to be downgraded.
The remarks by sources from China, Japan, India and South
Korea [ID:nSP412010], which were compiled by Reuters rather than
being a joint statement, helped to stem recent selling that has
driven the dollar's trade-weighted index .DXY to its lowest
this year and down more than 7 percent since the start of May.
Traders viewed the comments as an expression of support for
dollar-denominated assets from the nations which control about
half of the world's currency reserves. Dollar weakness would
erode the value of U.S. investments.
"It is highly rational that you would have comments like
these from the main reserve holders in Asia -- they are the
people with a natural interest in providing supportive comments
for the dollar," said Simon Derrick, head of currency research
at Bank of New York Mellon in London.
"It is in their interests for the dollar to restabilise or
strengthen ... They are sending a strong signal to the market
that they are not going to dump dollars."
The euro pulled away from a five-month high it had hit in
early trade, and selling accelerated after the Reuters story was
published. Sterling retreated from a seven-month high versus the
By 1056 GMT, the euro traded 0.4 percent lower at $1.4247,
after hitting a session low $1.4179 and falling from $1.4337 hit
in early trade, its strongest since December. A 1.0 percent fall
in European shares .FTEU3 also helped to push the euro lower.
The dollar index, which tracks the currency's moves against
a basket of six currencies, rose as much as around half a
percent after the comments, keeping just above its lowest level
of the year hit on Tuesday.
Some of the dollar's slide in past weeks has been attributed
to speculation that the U.S. credit rating may be downgraded, a
move which may prompt nations to diversify their foreign
reserves away from U.S. Treasuries.
The comments by the Asian monetary sources came after a
visit by U.S. Treasury Secretary Timothy Geithner to China, the
world's biggest holder of Treasuries, during which he assured
Beijing its U.S. investments were safe because Washington is
committed to a strong dollar policy.
Analysts said that the dollar-positive comments had
prompted traders to lock in profits against the suffering U.S.
currency, and that it might help to stem its recent selling for
the time being but was unlikely to change the trend.
"The market is becoming somewhat stretched on short dollar
positions as there has been decent sized buying in euro and
sterling, so traders were looking for a reason to calm things
down," said Geoffrey Yu, currency strategist at UBS in London.
Sterling <GBP=D4> fell as low as $1.6515 after the report,
tumbling from $1.6664 hit in early European trade for the first
time since October.
Economists say the possibility of a U.S. credit rating
downgrade is highly unlikely, but none of the Asian officials
dismissed such a possibility, while adding that such a move
would have limited impact on their reserve management policy.
Analysts said that the comments were significant, given that
the come as a handful of countries around the world have
questioned the dollar's role as the world's reserve currency.
"This is significant. It looks like a definite effort to try
and shore up the dollar ... and is a contrast to the kind of
noise made by Russia yesterday about a new supra-national
currency," said Daragh Maher, senior currency strategist at
Calyon in London.
On Tuesday, Russian President Dmitry Medvedev said the
world's biggest emerging markets may discuss the idea of a
supranational currency given a changing perception of the U.S.
dollar due to weakness in the country's economy.
Investors offered limited reaction to a final reading of
euro zone GDP, which showed that the economy shrank 4.8 percent
in the first quarter, its worse ever contraction.
They also brushed off a reading of services PMI in the
region, which was revised up to a seven-month high of 44.8 in
April from an initial reading of 43.8. Forecasts had been for
Given focus on whether global investors will continue to
flock to U.S. Treasuries, investors awaited testimony from U.S.
Federal Reserve Chairman Ben Bernanke, who will speak before the
House of Representatives Budget Committee at 1400 GMT.
The market is waiting for clues on whether the Fed will
increase or speed up purchases of longer-dated Treasuries to
keep down interest rates.
Traders also awaited figures on the U.S. employment sector
later in the day. Challenger, Gray & Christmas Inc. releases its
report on job cuts in May at 1130 GMT, while the ADP will
release its May employment report at 1215 GMT.
(Additional reporting by Swaha Pattanaik and Jamie McGeever;
Editing by Victoria Main)
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