FOREX-Yen rises as U.S. stocks fall amid credit worries
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By Vivianne Rodrigues
NEW YORK, July 31 (Reuters) - The yen rose on Tuesday as growing worries about a deterioration in U.S. credit markets pushed stock prices lower and prompted traders to unwind risky trades financed with the Japanese currency.
Traders said the yen was inversely tracking the fortunes of stock prices, which fell after mortgage lender American Home Mortgage Investment Corp. (AHM.N: Quote, Profile, Research) said it could not fund home loans and may have to liquidate assets.
"The forex market is tracking the stock market step by step," said Brian Taylor, a senior currency trader at M&T Bank in Buffalo, New York. "Everytime stocks turn lower, it's a sign for investors to buy yen."
In late afternoon trading in New York, the euro was down 0.6 percent at 162.22 yen <EURJPY=>, while the dollar was down 0.5 percent at 118.56 yen <JPY=>.
The euro <EUR=> was nearly flat at $1.3687 after trading as high as $1.3727. Declines in the dollar versus the euro were limited by data showing U.S. consumer confidence in July rose to a near-six-year high. For details, see [ID:nNYD000071].
"This confidence number is considerably better than expected and the highest we have seen in a while," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon. "We expect the dollar to break below $1.37 against the euro, particularly if the Dow continues to maintain its gains."
Markets ignored a softer-than-expected U.S. core inflation measure for June and a survey showing slower business activity in the U.S. Midwest.
The core personal consumption expenditure index, the inflation gauge most closely watched by Federal Reserve policy-makers, was up 0.1 percent last month. Markets were expecting core PCE to rise 0.2 percent.
"Core PCE up 0.1 percent month over month should be reassuring to the Fed and the other indicators are as expected with personal income a little bit lower," said Camilla Sutton, currency strategist with Scotia Capital in Toronto.
Futures still suggest the Fed will trim overnight lending rates once by year-end (FFZ7: Quote, Profile, Research) and a second time by mid-2008 (EDM8: Quote, Profile, Research) as inflation pressures subside.
More U.S. data is slated for Wednesday, including a private reading on employment, pending home sales, and an index on manufacturing activity.
(Additional reporting by David McMahon and Nick Olivari in New York)