Wednesday March 14, 2007 - 20:56:07 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar gains vs yen, boosted by US stocks rally
FOREX-Dollar gains vs yen, boosted by US stocks rally
Wed Mar 14, 2007 4:52pm ET25
(Updates prices, adds comment)
By Gertrude Chavez-Dreyfuss
NEW YORK, March 14 (Reuters) - The dollar rebounded against the yen on Wednesday in choppy trading after U.S. stocks recovered, reversing earlier declines.
The greenback has tracked moves in equities, as investors sold riskier assets in the last two weeks amid problems in the U.S. subprime mortgage market. That helped push U.S. blue-chip stocks to their lowest since November while driving U.S. Treasury prices higher.
"Dollar/yen is ... higher because of this rally in the Dow Jones index," said Rafael Martorell, chief foreign exchange dealer at BNP Paribas in New York.
"Currencies are extremely well-correlated with stocks. Today's price action suggests the correlation is intact," he added.
U.S. stocks rose on Wednesday after falling earlier, led by financial shares as recent losses have made them reasonably priced.
Late in New York, the dollar rose 0.8 percent against the yen to 117.03 .
Traders, however, remained cautious amid worries that troubles in the U.S. subprime market could spread to other sectors of the economy. For more about the subprime mortgage crisis, see [ID:nN07265694]. Subprime lenders extend financing to borrowers who cannot get standard loans to buy homes because of low income or tarnished credit.
The euro came off highs against the dollar, trading at $1.3224, still up 0.2 percent, though, on the day. It reached as high as $1.3246 around midday as U.S. equities weakened. Sterling erased overnight losses and gained 0.4 percent to $1.9357 .
Against the yen, the euro rose 1 percent to 154.80 .
The yen has gained about 4 percent in the last two weeks as a rise in risk aversion sent market participants scurrying for the exits on carry trades, in which investors borrow in a low-interest-rate currency to buy a higher-yielding unit and profit from the spread.
Despite the dollar's rally, some market participants were not convinced that investors have seen the end of the yen's surge.
"I still expect that dollar/yen is headed toward 111-109. This carry trade is not over," said Ken Jakubzak, president of commodity trading advisor KMJ Capital in Chicago.
"The market has been overdone in the last couple of days, so we're getting a reaction. With the stock market rally, people are saying the market should get out of their positions on the yen, however, the Japanese economic numbers are coming out strong,' he added.
The yen and Swiss franc, currencies with the lowest interest rates in the developed world, have been some of the biggest gainers this week as the concerns about U.S. subprime mortgages fanned risk aversion and prompted unwinding of carry trades.
Earlier, data showed that the U.S. current account deficit in the fourth quarter shrank to $195.7 billion from a revised $229.3 billion in the third quarter. The dollar received a fleeting boost from the data.
Â© Reuters 2007. All Rights Reserved.
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