The Dollar gains against the majors as stock losses boost demand for safety

The yen and the dollar rose against higher-yielding currencies as Asian stocks extended a worldwide equity decline, boosting demand for shelter from the global financial turmoil. The yen strengthened versus all 16 of the most-active currencies as the MSCI Asia Pacific index of shares slid for a second day on renewed concern the recession will hurt corporate earnings. “We need to assess reality once again during the earnings season to see if the recent optimism can be justified,” said Shigeru Nakane, a foreign-exchange dealer in Tokyo at Resona Bank Ltd.
“Caution ahead of the reporting may trigger selling” of stocks and boost demand for the dollar and the yen, he said. The USD/JPY is currently trading at 99.90 as of 10:00am, London time.

Sterling fell on Tuesday, retreating from a two-month high versus the dollar after weak UK data and a fall in domestic shares signalled a dip in risk appetite, prompting selling in the currency. The pound slipped after figures showed that UK manufacturing output fell 0.9 percent on the month in February, marking the 12th consecutive month of declines. While the fall was less than expected, analysts said that the data underscored deep weakness in the economy. "What the UK data has served to do is undermine confidence further," Neil Mellor, currency strategist at the Bank of New York, said. He added: "This is about the general level of risk aversion in equity markets, which is all over the place." The GBP/USD is currently trading at $1.4660 as of 10:08am, London time.

The Australian dollar will come under pressure in coming months amid speculation the central bank will lower interest rates further, according to Royal Bank of Scotland Group Plc. Australia’s key rate “will fall to 2 percent and the aussie will encounter significant yield advantage compression in the second half of this year,” currency strategists at RBS wrote in a note today. RBS said it is sticking to its near-term target of 74 U.S. cents for the aussie, “but equally we see this rally above 70 cents unsustainable on a medium-term forecast.” The AUD/USD is currently trading at 0.7078 as of 10:30am, London time.

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