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The Dollar gains as the markets tumble and investors seek a safe haven

Fri, Jul 3 2009, 11:47 GMT
by Benny Menashe

Finotec Group Inc.

The greenback headed for a gain against the euro as rising unemployment in the U.S. and Europe added to speculation that the global recession will be longer than thought, boosting demand for the relative safety of the American currency. The British pound was set for a decline against the greenbak on speculation a U.K. report today 8:30am, GMT will show the service industry in Europe’s second largest economy contracted in June, suggesting the worst of the worldwide slump is far from over and maybe prolonged. “The markets are getting a dose of reality after becoming over-optimistic on the worldwide rebound,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “Risk aversion is back, and the bias is for the yen and the dollar to be bought.” The EUR/USD is currently trading at $1.4005 as of 8:47am, London Time.

The British pound traded low versus the yen on speculation a slowdown in the U.K. service industry will give the Bank of England more reason to keep the interest rate low. An index based on a U.K. survey of about 700 service companies by the Chartered Institute of Purchasing and Supply fell to 51.5 in June from 51.7 in May, according to a Bloomberg News survey of economists. Readings above 50 indicate expansion.
“Poor economic data may damp appetite for riskier assets,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader. “There’s a high possibility this will lead to strength in the dollar and the yen and weakness in commodity currencies.” The GBP/USD is currently trading at $1.6360 as of 8:53am, London Time.

Canada’s currency the (loony) fell after a report showed U.S. employers cut more jobs than forecast in June, lowering prospects for the country’s economic recovery and damping investors’ appetite for risk. “The U.S. dollar is gaining on a risk-aversion trend,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, the nation’s sixth-largest lender. “All currencies are losing, except the U.S. dollar and the yen, which are historic beneficiaries of risk-aversion trades. Canada gets wrapped up in the fray.” Employers in the U.S. cut 467,000 jobs last month, the Labor Department said today in Washington. Economists anticipated a loss of 365,000. The USD/CAD is currently trading at as of 9:09am, London Time.

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Published on  Fri, Jul 3 2009, 11:53 GMT