Wednesday March 28, 2007 - 20:52:20 GMT
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FOREX Market News -Dollar drops against yen on Bernanke comments
FOREX-Dollar drops against yen on Bernanke comments
Wed Mar 28, 2007 4:32pm ET146
NEW YORK, March 28 (Reuters) - The dollar suffered its biggest slide against the yen in two weeks on Wednesday, in line with weakness on Wall Street, after Federal Reserve Chairman Ben Bernanke suggested a slowing housing market has clouded the U.S. economic outlook.
The sell-off in the dollar started overnight after rumors of conflict between the United States and Iran. That triggered a sharp spike in oil prices and falls in stocks and spurred investors to unwind risky carry trades that involve borrowing in the low-yielding yen and investing in higher-yielding assets.
Yen buying continued early into the New York session following a softer-than-expected report on U.S. durable goods orders, which boosted the chances of Federal Reserve rate cuts this year.
Analysts said dollar/yen traders are taking their cue from movements in U.S. stock markets, which posted sharp losses after Bernanke's testimony before a congressional committee. They said his remarks that U.S. inflationary risks remained on the upside were also bearish for stocks.
"Pressure or a heavy tone in U.S. equity markets has caused some unwinding or cutting back in risk appetite, which has prompted some yen buying," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.
Late afternoon in New York, the dollar was down 0.9 percent against the yen at 116.85 yen , its biggest one-day percentage decline since March 13, after dropping as low as 116.39 after Bernanke's remarks. U.S. stocks were also off the day's lows.
In a question-and-answer forum, Bernanke told lawmakers the central bank had not shifted its bias on monetary policy away from battling inflation.
"We have not shifted away from the inflation bias," Bernanke told the Joint Economic Committee, answering questions after testifying before the congressional panel.
Bernanke said earlier in his speech that near-term prospects for the U.S. housing market are uncertain and that developments in the subprime mortgage sector, which makes loans to high-risk borrowers, have raised more questions. For details, see [ID:nN28296872].
That weighed on the dollar/yen pair as well.
Overall, analysts said Bernanke's testimony was more balanced.
"Bernanke's comments were a bit of a mixed bag. On one hand, he said their primary concern remains the fight against the inflation, but on the other hand, he is expressing worries with the economic outlook,' said Omer Esiner, market analyst at Ruesch International in Washington.
"So in the end, he has something for dollar bears and something for the dollar bulls," Eisner added.
In other currencies, the high-yielding Australian dollar fell 1.2 percent against the yen to 94.06 yen as investors grew more risk-averse, while the New Zealand dollar dropped 1.4 percent to 82.60 yen .
Other currency pairs, meanwhile, traded within ranges. The euro was down 0.3 percent against the dollar at $1.3313 . Against the Swiss franc, the dollar rose 0.4 percent to 1.2164 francs .
(Additional reporting by Vivianne Rodrigues)
Â© Reuters 2007. All Rights Reserved.
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