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FOREX-Dlr cuts gains, yen falls after Obama speech

Published 01/27/2010, 11:49 PM
Updated 01/27/2010, 11:51 PM

* Dlr off 6-mth high vs euro, 5-mth peak vs currency basket

* Dlr cuts gain as Obama pledges to double exports in 5 yrs

* RBNZ keeps rates unchanged, minimal impact on kiwi

By Satomi Noguchi

TOKYO, Jan 28 (Reuters) - The yen fell and the U.S. dollar retreated from a six-month high against the euro after U.S. President Barack Obama laid out steps to revive the economy and eased market caution on moves to limit bank risk-taking by not revealing concrete plans on the issue.

Obama's announcement last week that he would seek sweeping reforms to curb risky lending by banks spooked financial markets, prompting investors to unwind their leveraged yen-funded carry trades.

Before Obama's speech on Thursday, the dollar powered to a five-month high against a basket of currencies, boosted by speculation over higher U.S. interest rates.

But the greenback trimmed gains versus the euro and fell against other riskier currencies after Obama pledged to double exports in five years to help create jobs, prompting some market players to think the U.S. government may seek a weak dollar to promote exports.

"So far, there seems to be relief in the market that he has not made strong remarks about the bank regulation plan. But we need to continue to watch how that pans out," said Ayako Sera, market strategist for Sumitomo Trust and Banking.

The euro was at $1.4020, flat on the day after rebounding from an earlier low of $1.3930 on trading platform EBS, its lowest since July.

The euro earlier dropped sharply after hitting loss-cutting orders below $1.3980, traders said.

Worries about Greece's fiscal health continued to weigh on the euro, which has fallen from a high of above $1.51 struck late last year.

The U.S. dollar index rose as far as 79.066, its highest since August.

On Wednesday, the dollar got a boost from an optimistic tone from the U.S. Federal Reserve.

At the end of its two-day meeting, the Fed's Open Market Committee (FOMC) decided to keep rates unchanged, as expected, and said it intended to end some emergency lending and asset-buying programmes.

But what set the market aflutter was Kansas City Fed President Thomas Hoenig, who dissented on the decision to leave interest rates at near zero. That led to a sell-off in U.S. Treasuries, especially at the shorter end of the curve.

The dollar was also helped by news that the Fed and other major central banks said they would end emergency dollar lending operations on Feb. 1..

The dollar was up 0.4 percent to 90.34 yen, having risen 0.4 percent on Wednesday when it bounced from a low of 89.14 yen on EBS.

The rebound was helped mainly by the rise in yields on U.S. Treasuries.

The euro rose 0.3 percent to 126.63 yen, above a nine-month low of 125.23 on EBS struck the previous day.

The New Zealand dollar barely reacted to the central bank's decision to keep rates on hold, but rose against the dollar and the yen together with other higher-yielding currencies like the Australian dollar. The kiwi was up 0.4 percent to $0.7095 and up 0.8 percent to 63.98 yen.

The move was expected and the Reserve Bank of New Zealand reaffirmed that it was looking at rate rises around the middle of the year.. (Additional Reporting by Kaori Kaneko; Editing by Joseph Radford)

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