Thursday, 16 October 2008

Dollar retreats as stock gains trim safety demand

The dollar retreated against the euro and a basket of currencies on Friday as safety demand from investors and global companies for the wor
ld's most liquid currency waned after a late surge in Wall Street shares.

Japan's Nikkei share average tracked U.S. stocks higher, gaining 2.6 per cent in early trade a day after its worst fall since the 1987 crash, further easing investor risk aversion.

The yen extended falls against the euro and the Australian dollar as gains in equities prompted investors to step back towards carry trades, in which the low-yielding yen is used to fund investment in higher-yielding currencies and assets.

"The safety buying of the dollar may have peaked for now," said Hideki Amikura, deputy general manager of forex at Nomura Trust Bank.

Further falls in interbank loan rates amid more drastic steps by central banks to provide funds and to improve bank balance sheets have provided relief to investors and a boost to the U.S. stock market, Amikura said.

But worries that worldwide efforts to rescue troubled banks will not stave off a global recession remained strong after more dismal U.S. data on housing and business activity, keeping losses in the yen and the dollar relatively small, traders said.

The euro was up 0.4 per cent from late Thursday New York trade at $1.3505.

The dollar index, which measures the dollar's value against a basket of six major currencies, fell 0.2 per cent to 82.155

Against the yen, the euro rose 0.3 per cent to 137.15 rebounding from an earlier low of 136.27 yen hit on trading platform EBS.

The dollar was nearly flat against the yen at 101.60 yen after dipping as low as 101.12 yen on EBS.

Source: EconomicTimes

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