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CURRENCIES: Safe-haven Flows Boost Yen, Stabilize Dollar

By William L. Watts

The U.S. dollar rebounded versus most major rivals except the Japanese yen Thursday, with both currencies benefiting from safe-haven flows amid fears of a potential sovereign debt default by Dubai.

Indications that U.S. authorities remain unconcerned about the dollar's long-running weakness, however, have left the greenback near recent lows, said Jane Foley, research director at Forex.com.

The Japanese yen, meanwhile, is broadly higher, proving the main beneficiary of the slump in investor risk appetite after state-owned Dubai World, with around $60 billion in liabilities, asked creditors for a six-month "standstill" on debt payments.

The dollar traded at 86.70 Japanese yen, after earlier sinking to 86.28 yen, a 14-year low. The dollar had traded at 87.37 yen in late North American trade on Wednesday.

The euro tumbled 1.4% against the Japanese unit to change hands at 134.47 yen.

Japan Finance Minister Hirohisa Fujii reportedly said Thursday that it's "time to watch the foreign-exchange market carefully," signaling that Japan may strengthen its monitoring of currency markets. But traders say the remark isn't a sign policy makers were preparing to immediately intervene.

"While intervention versus the U.S. dollar is a possibility, the success of such a policy would be doubtful in an environment when the Fed has promised low rates for an 'extended' period," Foley said. "So for now, Japanese officials, like their euro-zone counterparts, are likely to stick with jawboning in an effort to slow the dollar's fall."

The dollar index (DXY), which measures the greenback against a trade-weighted basket of six major currencies, gained 0.4% to 74.568 in recent trading.

It earlier fell to 74.227, its lowest level since August 2008. The index was at 74.252 late Wednesday.

The euro traded at $1.5059, down from $1.5137 late Wednesday. The British pound trimmed early losses but remained 0.3% lower versus the dollar at $1.6583. Concerns about U.K. bank exposure to Dubai weighed on the pound, analysts said.

Commodity-oriented currencies, which have posted strong rallies on rising risk appetite, were sent sharply lower Thursday.

The Australian dollar fell 1.6% versus the U.S. unit to trade at 91.69 cents. The U.S. dollar rose 1.9% against the New Zealand dollar to trade at NZ$1.3918.

Thin trading conditions could make for choppy action with U.S. financial markets closed for the Thanksgiving Day holiday, analysts said.

The Dubai news, meanwhile, sent the cost of insuring against default by Dubai and other Middle Eastern countries soaring and weighed on a range of emerging-market currencies, including the South African rand, Hungarian forint and Turkish lira.

The dollar is currently rose 1.8% to 7.4567 rand in recent action. The euro rose 1.5% versus the Turkish currency to 2.2793 lira. The Hungarian forint fell 1% against the single currency to trade at 269.68 per lira.

"The worries concerning Dubai focus on potential banking losses and given the fact that the banks with the largest exposure to Dubai are also big players in, for example, South Africa, it is only natural that the rand has come under pressure," said Lars Christensen, chief analyst at Danske Bank in Copenhagen.

Dubai-related concerns could also add to banking worries in countries that have gone through Dubai-style boom-busts, including a number of Central and Eastern European economies, he said, while the size of Middle East investments in Turkey in recent years would also leave the Turkish lira vulnerable.

The U.S. dollar rose 0.6% versus the Swiss currency to trade at 1.0018 francs. The dollar had fallen below parity versus the Swiss currency on Wednesday.

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(END) Dow Jones Newswires

November 26, 2009 08:27 ET (13:27 GMT)


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