Tuesday June 9, 2009 - 10:41:03 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar pauses, investors reassess U.S. rate view
* Dlr pauses from gains, investors reassess U.S. rate view
* Euro slips after German industry output falls
* Sterling firmer on data, lull in political storm
By Naomi Tajitsu
LONDON, June 9 (Reuters) - The dollar paused from gains on
Tuesday while investors questioned whether there was a strong
enough chance of a U.S. interest rate rise later this year to
justify pushing the currency higher.
The euro slipped after a bigger-than-expected fall in German
industry output suggested the euro zone's biggest economy is
still suffering from slack global demand for its goods. ECON
The dollar pulled back from early losses, but stayed under
downward pressure due to a rise in sterling, whose rally on
stronger-than-expected UK economic data and signs of greater
political stability helped to support the euro against the
The dollar had climbed after U.S. jobs data late last week
stoked the view that U.S. rates may rise from roughly zero at
the end of 2009. But its rally had fizzled by Tuesday as a lack
of major economic data or events left traders with few reasons
to push the dollar higher, analysts said.
"The market has not moved significantly towards
dollar-positive sentiment, and it's fair to expect that
investors are unwilling to take on strong positions (in favour
of the U.S. currency)," said Michael Klawitter, senior currency
strategist at Dresdner Kleinwort in Frankfurt.
Traders said they were focusing on economic indicators and
auctions for U.S. debt later this week to gauge whether a shift
towards a dollar-positive trend will take hold.
The euro <EUR=> traded 0.1 percent lower on the day at
$1.3883, according to Reuters data, down from the day's high of
$1.3963 after figures showing that German industry output fell
1.9 percent in April from the previous month, reversing a
positive reading from March [ID:nBAF001697].
Still, the euro trimmed some losses made on Monday when
Standard & Poor's downgraded its sovereign rating on Ireland.
Some in the market said that the view that Latvia may not
have to devalue its currency to deal with extreme economic
weakness also provided some support to the euro. Latvian Finance
Minister Einars Repse on Tuesday said that a devaluation of the
lat was "absolutely out of the question" and had never been
The U.S. currency was little changed against a basket of
currencies at 80.748 .DXY, but was down from 81.466 hit on
Monday for the first time since May 20.
Sterling <GBP=D4> was up 0.4 percent at $1.6110, recovering
from a slide to $1.5803 the previous day, after data suggesting
the ailing housing market may be nearing a trough.
Traders in London said the pound was also boosted on relief
that political troubles facing UK Prime Minister Gordon Brown
appear to have calmed for now, after members of his party
offered their support to his leadership on Monday.
Despite its broad losses, the dollar <JPY=> rose 0.4 percent
against the yen to 98.05 yen as a 0.4 percent rise in European
shares .FTEU3 stung the yen, which had gained earlier in the
year due to risk aversion.
Dollar losses were limited after Chinese Vice Foreign
Minister He Yafei said Beijing, the largest holder of official
currency reserves, had no intention of abandoning U.S. dollar
assets, saying that no one is talking about "dumping the dollar"
The comments added to the market's view that a sudden
diversification by countries holding massive amounts of U.S.
Treasuries away from dollar assets is unlikely.
U.S. RATE VIEW
Data last week showed the pace of U.S. job losses slowed
sharply in May, sparking talk that the Federal Reserve may raise
rates later this year and boosting the dollar. [ID:nN05276580]
On Friday, U.S. short-term interest rate futures, which
track market expectations for Fed rate policy, had their first
meaningful move in months -- bringing forward the possible
timing of a Fed rate hike to late 2009 from early 2010.
U.S. two-year Treasury note yields stood at 1.338 percent
<US2YT=RR> on Tuesday, after rising above 1.4 percent on Monday
for the first time in seven months.
Some analysts argue that a rise in inflation risks is
unlikely this year given that the global economy continues to
struggle and it may therefore be premature to reward currencies
on rate rise expectations.
"Yes, the deterioration in U.S. data has slowed, but to
suggest that this automatically extrapolates the view that the
Fed is looking to take back some monetary easing before year end
is somewhat injudicious," said Jeremy Stretch, strategist at
Rabobank in London.
"It's safe to say that market is getting ahead of itself."
Market participants said they were awaiting an auction of
three-year U.S. Treasury notes later in the day and auctions of
10-year and 30-year U.S. Treasuries later in the week to get a
better picture of rate expectations.
(Editing by Ruth Pitchford)
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