FOREX-Yen gains broadly as risk aversion rises

Tue Mar 4, 2008 9:30am EST

NEW YORK, March 4 (Reuters) - The yen rose on Tuesday as weaker global equities encouraged investors to unwind carry trades, while the euro paused against the dollar after European officials voiced concerns about its latest rally.

Fears of a recession in the United States stemming from the subprime mortgage crisis have hammered the dollar, driving it to successive record lows against the euro and pushing it close to the psychologically important 100-yen mark.

"The yen is benefiting from risk aversion, which is the weakness in the equity markets across the globe. The second is the interest-rate compression between the dollar and the yen is starting to become very substantial," said Boris Schlossberg, senior currency strategist at DailyFX.com in New York.

Investors often borrow in the low-yielding yen to buy high-yielding currencies and assets. In periods of uncertainty, they tend to unwind these trades, boosting the Japanese currency.

In New York morning trade, the dollar was down 0.2 percent at 103.04 yen , after dipping to three-year troughs of 102.59 yen the previous session.

"As it gets closer to the 100 (yen) level you are going to see more speculative flows coming in, trying to test the Bank of Japan to see if they are willing to intervene at this point," said Schlossberg.

Remarks by Jean-Claude Juncker, chairman of the Eurogroup of finance ministers, that the euro was overvalued against other currencies, halted the common currency's five-day run of record highs versus the dollar.

Forex - Euro edges higher as dollar recovery loses momentum

03.04.08, 8:18 AM ET

LONDON (Thomson Financial) - The euro edged higher against the dollar as the US currency's recovery overnight began to lose momentum.

The dollar had gained after both European and Japanese officials expressed concern about the recent sharp rises in their currencies against the US unit. Market players, however, are sceptical about the prospect of actual intervention to prop up the dollar, while there are still no fundamental reasons to buy the US currency.

'It is very difficult to make any case for the dollar to strengthen at the moment,' said Robert Howard at Thomson IFR Markets.

'The ECB will have to actually intervene or to surprise the market with an interest rate cut on Thursday,' he said.

In this respect, Thursday's interest rate decision by the European Central Bank -- where rates are fully expected to be left at 4.00 pct -- and president Jean-Claude Trichet's accompanying press conference will be closely watched, particularly for any comments by Trichet on the euro, Howard said.

The other factor to consider is whether there is any consensus within Europe on a need for intervention, particularly from Germany, while rate-setters may consider that a strong currency will help keep inflation down.

Speaking late yesterday, euro group president Jean-Claude Juncker said current exchange rates do not reflect economic fundamentals and that excessive volatility is not desirable for growth. He tempered these comments this morning, however, by saying the real economy is not being hurt by the euro's strength.

European Central Bank Governing Council member Guy Quaden meanwhile called on the US to reiterate that it favours a strong dollar, while Japanese officials warned about the strong yen's impact on consumption and company earnings.

Among other currencies meanwhile, the Canadian dollar was steady ahead of the Bank of Canada rate decision this afternoon.

The currency came under pressure yesterday after very weak GDP data increased speculation that the BoC could opt for a 50 basis point rate cut.

FOREX-Euro's run of record highs halted by Juncker comments

LONDON, March 4 (Reuters) - The euro halted its five-day run of record highs versus the dollar on Tuesday after European officials voiced concerns about the sharp rise of the common currency.

Jean-Claude Juncker, chairman of the Eurogroup of finance ministers, said on Monday the ministers and European Central Bank President Jean-Claude Trichet had discussed exchange rate policy and agreed to express concerns about excessive moves.

However on Tuesday he seemed to slightly soften his stance, saying he sees no general harm to the economy from a strong euro and it is not wise to have targets for the exchange rate.

"I think that's a step in the direction of becoming more worried about the euro. Still it seems that he (Juncker) softened those comments this morning," said Johan Javeus, FX strategist at SEB in Stockholm.

"The market hasn't completely re-evaluated the situation based on these statements, but they have taken the edge off some of the euro strength we've seen recently."

By 1138 GMT the euro was steady at $1.5217 , off the $1.5275 high set on Monday according to Reuters data.

Commodities and inflation

Prices are going up because prices are going up. That seems to be the rationale for $100 oil and (almost) $1,000 gold. As the Federal Reserve pulls the rug from under the dollar in an effort to stave off recession, so investors are buying raw materials as a hedge against inflation.

There are some fundamental factors – supply bottlenecks, resource industry consolidation, Asian demand – underpinning commodities prices. But these cannot explain the recent surge. This is bad news for the Fed. Steep rises in commodities prices make a mockery of the distinction between core and headline inflation, effectively taxing consumers and businesses. Ben Bernanke, the Fed’s chairman, dismisses talk of stagflation.

Forex - Dollar comes off highs after overnight recovery

03.04.08, 4:53 AM ET

LONDON (Thomson Financial) - The dollar edged slightly lower after solid overnight gains as both European and Japanese officials expressed concern about the recent sharp rises in their currencies against the US unit.

While intervention to prop up the dollar is seen as unlikely, officials are increasing the pressure on the US administration to reiterate its strong dollar policy following the recent steep falls against a range of major currencies.

'Both Japan and Europe are becoming increasingly concerned by recent developments in the currency markets and are notably making very deliberate reference to wording from past G7 statements,' said Simon Derrick at the Bank of New York (nyse: BK - news - people ) Mellon.

Speaking late yesterday, euro group president Jean-Claude Juncker said current exchange rates do not reflect economic fundamentals and excessive volatility is not desirable for growth.

European Central Bank governing council member Guy Quaden also called on the US to reiterate it favours a strong dollar.

But attention will now turn to Thursday's interest rate decision and accompanying press conference by ECB president Jean-Claude Trichet, who has repeatedly focused on the risks of rising inflation.

'Any mention of euro strength by ECB President Trichet in the press conference (after the rate decision) is likely to weigh heavily on euro/dollar and euro/sterling,' said Steve Pearson (nyse: PSO - news - people ) at HBOS.

Meanwhile, the yen came off highs across the board after Japanese officials warned of the strong yen's impact on consumption and earnings at companies.

Among other currencies, the Australian dollar recovered slightly after sharp falls overnight. The losses came after the Reserve Bank of Australia raised interest rates as expected but noted the cumulative impact of four interest rate rises since mid-2007 have produced a substantial tightening in credit conditions.

This has raised speculation the central bank may be inclined to adopt a 'wait and see' approach before opting to raise-again.

The Canadian dollar has also remained on the weak side ahead of today's Bank of Canada rate decision, where the chances of a 50 basis point rate cut have increased after data yesterday revealed a sharp drop in GDP growth in December.

'Recent developments in Canada - very soft December GDP data pushing expectations toward a 50 basis point rate cut today - and Australia - a more dovish than expected tilt to the RBA statement last night and weaker than expected December retail sales - have sapped both the Australian and Canadian dollars of some momentum,' HBOS' Pearson said.

Forex - Dollar firmer after Europe, Japan air worries about currencies' strength

03.04.08, 12:54 AM ET

HONG KONG (Thomson Financial) - The US dollar was firmer against the euro and the yen in afternoon trade in Asia on Tuesday after European and Japanese officials aired their concerns about the impact their strong currencies are having on their respective economies.

Luxembourg and Slovenia finance ministers have expressed worries about the rise in the euro, which has risen to record levels against the dollar since last week, while Japan's economic and policy head warned about the strong yen's impact on consumption and earnings at companies.

'The European officials are trying to slow down the rapid appreciation of their currency, which is bad for their exports,' said Mark Wan, chief analyst at Hang Seng Investment Services Ltd.

'But they are not trying to prevent its appreciation because there is no reason why the euro should not continue its appreciation. Economic data coming out of the US is not helping the dollar.'

Last month, the European Commission cut its 2008 growth estimate for its 15-member euro zone area to 1.8 percent from 2.2 percent.

At 1.00 pm (0500 GMT), the euro was trading at 1.5181 dollars, down from 1.5200 in Tokyo this morning. The euro rose to a fresh record 1.5275 dollars in New York trade Monday.

The dollar was quoted at 103.36 yen, up from 103.26 this morning. The greenback touched a three-year low of 102.62 yen overnight.

'The Japanese government should be worried about the strong yen because it will not help their already weak economy,' said Wan. Given its slowing economy, the yen should be trading at the 107-108 levels versus the greenback, he said.

The International Monetary Fund in January lowered its 2008 growth forecast for Japan to 1.5 percent from 1.7 percent previously.

The dollar was also supported by the Institute for Supply Management (ISM) report on Monday showing that the US manufacturing index came in at 48.3 in February -- higher than the 48.1 forecast by Thomson Financial/IFR.

Still, the greenback will remain under pressure because some analysts and traders are speculating that the Federal Reserve will probably slash its interest rates by up to 75 basis points on March 18, said Wan.

The euro may reach another record of 1.55 dollars, he said.

The Fed has trimmed its rates by a cumulative 225 basis points since September to stimulate the US economy reeling from rising jobless rate, falling consumer spending, higher inflation and a slumping financial and housing sectors.

Investors are now waiting for the release of the ISM service sector index on Thursday and the non-farm payrolls data, due out Friday, for fresh clues about the US economy and interest rates.

'Depending on the outcome of the ISM service sector report and non-farm payrolls data, the dollar may quickly resume its downtrend and test the 100 yen level,' said Mitsubishi UFJ Securities foreign exchange manager Minoru Shioiri.

The market is bracing for more US interest rate cuts after Philadelphia Federal Reserve president Charles Plosser said overnight that the spike in US inflation is 'worrisome, but also highly uncertain', suggesting the Fed hopes weaker growth will diminish price pressures.

Plosser said he does not believe the US is in a recession, but that the economy will experience 'very slow growth' in the first half of the year.

London shares outlook - higher as NY closes off lows, earnings news focus

03.04.08, 1:59 AM ET

LONDON (Thomson Financial) - Leading shares look set to open higher as Wall Street closed overnight off lows with earnings news a likely focus as Admiral Group and Schroders report in the blue chips.

Spread bettors IG Index expect the FTSE 100 index to open up 23 points at 5,843 after closing off 65.7 points at 5,818.6.

Overnight in the US, Wall Street closed narrowly mixed after initially falling in early trade as investors wrestled with record-high commodities prices and data that pointed to a continually weakening economy.

The Dow Jones industrial average -- after slumping more than 100 points briefly during afternoon trading -- finished down 7.49 points to 12,258.90.

Separately, the Standard & Poor's 500 index rose 0.71 points to 1,331.34, while the Nasdaq composite index fell 12.88 to 2,258.60.

Stock markets across Asia were mixed following the lackluster session on Wall Street, the Nikkei 225 index closed up 0.10 points at 12,992.28, while the Hang Seng index was down 155.89 points at 23,429.08.

Elsewhere, oil prices edged higher in Asian trade as traders focused on the weak US dollar and news that OPEC would keep output steady.

New York's main contract, light sweet crude for delivery in April, gained 18 cents to 102.63 usd a barrel from 102.45 usd in New York on Monday.

London's Brent North Sea crude for April delivery rose 22 cents to 100.70 usd a barrel.

Turning to the blue chips, UK motor insurer Admiral Group may be in the spotlight today as it is expected to report a 17 pct increase in full-year profit today, buoyed by steady growth in customer numbers thanks to competitive pricing.

Admiral, which sells motor insurance direct to consumers through the

Admiral, Bell, Diamond and Elephant.co.uk brands, will deliver a 2007 pretax

profit of 172.4 mln stg, up from 147.3 mln in the previous year, according to an

average analyst forecast supplied by the company.

Elsewhere, fund management groups maybe a focus with Schroders expected to report a 28 pct increase in full-year profit today, helped by steady growth in the core asset management division on the back of buoyant stock markets in the first half of 2007.

Meanwhile, Cable & Wireless is not expected to announce any major restructuring plans including the oft-rumoured demerger when it addresses investors today, although there will be an update on the turnaround in Europe and more light shed on its prospects in Jamaica and across the international business.