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Daily Analysis

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US Dollar Shows Stability as Economy worries Grow

Fri, Nov 21 2008, 10:29 GMT
by Benny Menashe

Finotec Group Inc.

The greenback and yen rose against the euro and currencies of nations with high interest rates, like the Australian and New Zealand dollars, as investors sold risky assets such as stocks and commodities financed by loans denominated in the U.S. dollar and the Japanese unit.
Currency investors continued to track movements in the U.S. stock market, with the S&P 500 index sliding to an 11-1/2 year. The Dollar is trading around the levels of 1.2540 against the Euro, around the levels of 95.05 against the Yen and around the levels of 1.4865 against the sterling.

U.S. Democratic congressional leaders said yesterday they will delay action at least until next month on government support for General Motors Corp., Ford Motor Co. and Chrysler LLC as the three companies haven't yet made a case for the help. “It's difficult to change the trend of stock declines pushing up the yen. Until we reach a conclusion on U.S. automakers, risk is off the table.”

The Bank of Japan held its benchmark at 0.3 percent and said it will consider pumping more money into the financial system to prop up an economy that fell into a recession last quarter. Japan's rate compares with 6.5 percent in New Zealand, 3 percent in the U.K., 8.25 percent in Mexico and 4 percent in South Korea. The unanimous rate decision followed a cut from 0.5 percent last month, the first in seven years.

The yen weakened against the Australian dollar, a favorite of so-called carry trades, after the Reserve Bank of Australia bought its own currency for at least the fifth time in four weeks. The Once stock markets turn around. People have been leaning too far in the same direction. There's also talk of intervention in other currencies. The yen still headed for a third weekly gain against the dollar and the euro as U.S. lawmakers held off taking action on a bailout requested by the nation's automakers, spurring a reduction in so-called carry trades. JPMorgan Chase & Co. forecasts the yen will advance to 87 against the dollar and 103 per euro by year-end.

The Reserve Bank of Australia bought a record A$3.15 billion in the market in October, it said yesterday, as the Australian dollar touched 60.10 U.S. cents, the lowest since 2003. An RBA spokesman confirmed the bank bought Australian dollars this morning, providing liquidity as on previous occasions.

Today's Economic Events

Published on  Fri, Nov 21 2008, 10:33 GMT