Wednesday April 4, 2007 - 09:28:22 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dlr retreats from 5-wk high vs yen, carry trades fade
FOREX-Dlr retreats from 5-wk high vs yen, carry trades fade
Wed Apr 4, 2007 4:42am ET25
(Updates prices, adds quotes, changes dateline, byline)
By Toni Vorobyova
LONDON, April 4 (Reuters) - The dollar backed away from an earlier five-week peak versus the yen on Wednesday as investors were reluctant to enter more carry trades ahead of key U.S. data, Easter holidays and next week's Group of Seven meeting.
Gains in stock markets on Tuesday had reignited risk appetite, luring people into carry trades where low-yielding currencies like the yen and Swiss franc are borrowed to fund purchases of higher return assets.
But with the yen hitting five-week lows versus the euro and the dollar this week and the Swiss franc setting an eight-year trough against the single European currency, investors started to become less comfortable with pushing such positions any further for now.
Markets are nervous ahead of a keenly-watched U.S. non-farm payrolls report on Friday -- clues on the likely reading of which may come from the ADP private sector employment report at 1215 GMT -- and the Group of Seven finance ministers meeting next week, which may yield some comments on currencies.
"We have already seen quite significant losses in yen as well as the Swiss franc and we are running into the G7 meeting next week, so I would suspect the market will soon get a bit nervous when looking at the yen and Swiss crosses so further upside will be increasingly difficult," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.
The dollar hit a five-week high versus the yen for a second day, at 119.01 yen , before retreating to 118.72 by 0825 GMT. The euro was buying 158.48 yen .
Versus the dollar, the euro was up 0.15 percent on the day at $1.3352 , as data showing a slight slowdown in euro zone service sector growth in March did little to alter expectations for one more rate hike from the European Central Bank.
AUSSIE BOUNCES BACK
The Australian dollar fell as much as 0.8 percent versus the greenback after the Reserve Bank of Australia decided to hold rates steady at 6.25 percent, disappointing those investors who had been banking on a rate hike .
But the Aussie quickly recovered to stand steady on the day at US$0.8133, about 50 ticks below 10-year highs seen on Monday.
"The Aussie set back has been short-lived as markets correctly assume the RBA rate hike is only delayed but not taken off the table," BNP Paribas said in a research note.
In the United States, in contrast, the next interest rate move is expected to be a cut from the current 5.25 percent. The focus is now on data for clues on how soon this will come.
The ADP employment report is expected to show that 110,000 jobs were created last month, up from 57,000 in February.
The Institute for Supply Management's non-manufacturing, due at 1400 GMT, is expected to produce a reading of 55.0 in March, up slightly from 54.3 in February.
Factory orders for February are also released on Wednesday.
Â© Reuters 2007. All Rights Reserved.
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