Tuesday June 16, 2009 - 10:38:31 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar stung by Russia comments, euro up on ZEW
* Dollar falls broadly on Russia comments on FX reserves
* Euro climbs after surprisingly strong ZEW survey
* Market anticipates comments from BRICs meet
(Adds comments, details, updates throughout)
By Naomi Tajitsu
LONDON, June 16 (Reuters) - The dollar fell broadly on
Tuesday after what were seen as dollar-negative comments from
Russia, while the euro extended gains after a strong reading of
German economic sentiment.
Before a BRICs summit later in the day, Russian President
Dmitry Medvedev said the world needs new reserve currencies,
which traders took as signals that it may be looking to cut the
share of U.S. assets in its currency portfolio [ID:nLG426293].
The German think tank ZEW on Tuesday said its index of
economic sentiment rose to 44.8 in June, surging from 31.1 in
May and exceeding expectations for a 35.0 print [ID:nLG831670].
This suggested that market participants are hopeful that the
euro zone's largest economy will recover later in the year.
Some analysts said the strength in the index was somewhat
expected, given the recent rally in stocks, which are seen to be
highly correlated with the survey.
"The survey is telling us what we already knew, that
financial market conditions have definately improved," said Adam
Cole, global head of currency strategy at RBC in London.
"We've seen a fairly sustained rally in equities (so) it was
fairly inevitable that the ZEW would rise as a result."
He added that the next test of health for the German economy
would be whether the strength seen in the ZEW survey would feed
through to other measures of sentiment and industry.
By 1021 GMT, the euro traded 0.6 percent higher at $1.3975,
after climbing as high as $1.3923 after the ZEW poll.
The pair recovered from $1.3748 touched on trading platform
EBS earlier in the day, its lowest since May 21, as the dollar
was unable to hold gains made after falling stock prices raised
risk aversion and prompted safe-haven demand for the dollar.
Losses versus the euro helped to push the dollar index
.DXY down nearly 1 percent on the day.
Sterling <GBP=D4> rose against the dollar, after a
smaller-than-expected fall in UK inflation fuelled expectations
that the Bank of England may not need to continue quantitative
easing much longer. It rose to its highest level of the year
against the euro to 84.39 pence <EURGBP=R>.
The dollar <JPY=> traded 1.0 percent lower at 96.80 yen,
after falling to 96.08 yen on EBS in early European trade.
The euro <EURJPY=R> was 0.5 percent lower at 134.25 yen, not
far from a three-week low hit earlier in the day. Struggling
European shares .FTEU3 kept some traders risk averse,
prompting broad, safe-haven flows into the yen.
Traders offered limited initial reaction to The Bank of
Japan's upgrade of its economic assessment on Tuesday, which
came after the central bank held interest rates at 0.1 percent.
Traders shunned the dollar ahead of the summit of BRICs
emerging nations -- Brazil, Russia, India and China -- in
Russia, which comes amid rising market speculation that
countries may be looking to diversify reserves portfolios away
from U.S. Treasuries in the future.
Medvedev's comments came after Russian Finance Minister
Alexei Kudrin at the weekend said the dollar's status as the
world's main reserve currency would unlikely change in the near
term, clouding the market's understanding of Moscow's position.
Any negative remarks on the dollar, particularly from China,
which holds the world's largest pile of currency reserves, would
hurt confidence in the U.S. currency, analysts said.
"(The dollar's slide) underlines the likely sensitivity of
the FX market to comments emerging from today's meeting,"
analysts at Barclays wrote in a research note.
"That said, it is unlikely that any concrete decision on an
alternative to the USD as a reserve currency will reached," the
said, adding that any currency reaction to comments from the
meeting would likely be short-lived.
(Reporting by Naomi Tajitsu; Editing by Victoria Main)
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