Dollar gains on yen, loses against other currencies

Wednesday October 29, 6:03 AM


The dollar rose sharply against the yen Tuesday but lost ground against most other rivals as sharp gains in stocks helped push investors away from the safety of the US and Japanese units.

The action came with the market widely expecting a cut in interest rates from the US Federal Reserve, but traders also mulled a report in Tokyo that the Bank of Japan (BoJ) was willing to cut rates to help ease the global credit crisis.

At 1900 GMT, the euro was trading at 1.2597 dollars, off an early dip to 1.2328 dollars, its lowest level since April 2006, and up from 1.2471 dollars late in New York on Monday.

The dollar was at 97.47 yen, up sharply from 92.76 yen in New York Monday.

"Sharp gains in the equities markets and a Nikkei news report suggesting the BoJ was considering a rate cut sent the yen down against the dollar," analysts at Brown Brothers Harriman said.

PNC Bank analysts said in a note that "the focus of the currency markets remains on the liquidation of carry trade positions" involving yen borrowed at low rates.

"The moves have become so violent that there has been talk of concerted central bank intervention to check these exaggerated moves. The yen in particular is giving monetary authorities headaches as it is the one of the main anchor currencies of the carry trade liquidation and is trading at its the strongest level in 13 years," the analysts said.

"The strength of the currency will hurt exports in an already weak economic environment. As the talk of possible intervention continued, speculators liquidated their long yen positions and halted a further rout."

The euro meanwhile has been under relentless pressure on concerns about slowing eurozone growth while the dollar has benefitted from its traditional safe haven status amid the unprecedented turmoil of the global financial crisis.

With stock markets finding some relief Tuesday after recent massive losses, forex trading was also steadier as investors waited for Wednesday's decision by the Fed on interest rates.

News that US consumer confidence had plunged to a record low in October -- to 38 points from 61.4 points in September -- made a rate cut almost certain, dealers said.

"There's mounting speculation that the massive equity sell-off may be coming to an end ... and with this, there is a move to start pulling some funds out of dollars," said James Hughes at CMC Markets.

"As a result the greenback is retreating from recent highs but it's worth cautioning that this could easily be reversed if confidence in stocks wanes again," he said.

Analysts said the relative calm Tuesday was fragile and could easily disappear with the next twist in the financial crisis, especially now that the emerging markets in eastern Europe and Asia were beginning to show signs of strain.

The Federal Reserve opened a two-day meeting on Tuesday widely expected to cut key interest rates further as part of an unrelenting effort by the central bank to restore confidence to battered markets.

The US central bank, which led a coordinated global rate cut earlier this month that pushed its target rate down a half-point to 1.50 percent, is seen as trimming the rate another 25 to 50 basis points.

In late New York trade, the dollar stood at 1.1588 Swiss francs from 1.1559.

The pound was at 1.5795 dollars after 1.5551.