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UPDATE: Euro Rises To Intraday Highs Vs Yen, Dollar

(Updates with additional analyst quotes, fresh prices)

 
   By Riva Froymovich 
   Of DOW JONES NEWSWIRES 
 

NEW YORK (Dow Jones)--The euro rose to intraday highs against the yen and dollar Monday morning as currency traders put riskier trades back in play on the support monetary officials worldwide are providing money markets.

The common currency recently rose as high as $1.4646, a fresh three-week high, and Y156.05, more than a two-week high.

In another sign that risk appetite isn't dead, the higher-yielding Australian dollar also rallied to three-week highs and the Chilean peso began trading 2% stronger Monday, up from the 19-month low it closed at Wednesday before local markets there took a four-day holiday weekend.

Since then, Wall Street has been totally remade, and global financial leaders around the globe stepped up the dialogue Monday.

In a statement early Monday, the Group of Seven finance ministers and central bank governors said they are ready to act as needed to ensure the stability of the international financial system and they welcomed the "extraordinary actions" taken by the U.S. to address the credit crunch.

"News towards a Reserve Trust Cooperation, the attempt to really remove all toxic waste from balance sheets, and attempts to save institutions such as Morgan Stanley and Goldman Sachs from defaulting has led to sharp gains in riskier assets and reversed the tendency towards dollar strengthening," said Teis Knuthsen, chief foreign exchange strategist at Danske Bank.

The dollar had been benefitting over the last month from position-squaring flows associated with the safe-haven buying of U.S. assets on fears of a global crisis. The euro fell to a one-year low of $1.3882 Sept. 11 from a record high last July of $1.6040.

Those same flows had supported the lower-yielding yen.

"Now, they're reversing," said Knuthsen.

The euro is also gaining early Monday on a rise in crude oil futures, which advanced to a two-week high Monday.

Monday morning in New York, the euro was at $1.4639 from $1.4480 late Friday. The dollar was at Y106.31 from Y107.25, according to EBS. The euro was at Y155.64 from Y155.27. The U.K. pound was at $1.8423 from $1.8355, and the dollar was at CHF1.0908 from CHF1.1025 Friday.

Markets are awaiting more details regarding the Treasury department's proposal for a $700 billion bailout. The details of that plan are being second-guessed by some market-watchers for its costs.

Adarsh Sinha, foreign exchange analyst at Barclays Capital in London, said that is part of the reason why the dollar is down Monday and forecasts that the euro could rise as high as $1.50 within a month.

"This is a huge fiscal package going through. The total cost is probably going to be quite large, and it's going to lead to a deterioration of the U.S. position relative to other economies," he said.

"That position is a medium-term driver for exchange rates," said Sinha. "The bottom line is given uncertainties surrounding this, that translates to a high-risk premium in both near and medium term."

Meanwhile, other currencies are also gaining on signs of stabilization in what has becomes an archaic business model - the investment bank.

Mitsubishi UFJ Financial Group Inc. announced Monday it has agreed with Morgan Stanley (MWD) to buy a stake of between 10% and 20% in the U.S. company in order to establish a strategic partnership.

Overnight, the Federal Reserve, in an attempt to prevent the crisis on Wall Street from infecting its two premier institutions, took the extraordinary measure of agreeing to convert investment banks Morgan Stanley and Goldman Sachs Group Inc. into traditional bank holding companies.

The deal provides some answers for questions regarding the firm's ability to meet capitalization requirements.

The sweeping attempts to curb the downfall of money markets in the U.S. began last week after Lehman Brothers Holdings Inc. (LEH) declared bankruptcy, and financial stocks led equities markets on a downslide.

At the tail end of last week, the Treasury also approved a temporary money market mutual fund guaranty program and the Federal Reserve extended loans to banks to finance their purchases of high-quality asset-backed commercial paper from money-market mutual funds. This followed a move by the Fed, in coordination with other central banks, to pump billions of dollars into global financial markets to improve lending conditions for banks.

-By Riva Froymovich, Dow Jones Newswires; 201 938-5063; riva.froymovich@dowjones.com

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(END) Dow Jones Newswires

September 22, 2008 10:31 ET (14:31 GMT)


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