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FOREX-Dollar up from 14-yr low vs yen; Dubai supports

Published 11/26/2009, 06:01 AM
Updated 11/26/2009, 06:03 AM

* Dubai debt problems dent risk appetite, support dollar

* Dollar rebounds from 14-year low vs yen below 86.30 yen

* Japan not considering intervention now

* SNB declines comment on Swiss franc intervention rumours

(Recasts, updates prices, adds quotes and comment)

By Jamie McGeever

LONDON, Nov 26 (Reuters) - The dollar rebounded from a 14-year low against the yen on Thursday as traders betting against the dollar seized on the broad risk reduction prompted by Dubai's debt problems to cash in on its recent slide.

Dubai's shock move on Wednesday to restructure its biggest corporate debtor, Dubai World, and delay repayment on some of the company's $59 billion of liabilities, dented risk appetite across all asset markets on Thursday, to the dollar's benefit.

A 2 percent fall in European stocks and U.S. futures pointing to a 1 percent fall on Wall Street encouraged traders to trim positions that involve selling dollars for other currencies and assets like commodities.

"Recent news in emerging markets has reverberated around the market. While much of the moves are going to occur in rates and credit markets, it is also being reflected in stock markets and foreign exchange," said Lauren Rosborough, senior strategist at Westpac in London.

But the dollar's recovery may be temporary, if the prospect of persistent loose U.S. monetary policy keeps overall sentiment bearish.

Also, Japan's deputy finance minister Yoshihiko Noda told Reuters recent currency moves reflected dollar weakness and Japan wasn't considering intervening now.

The Swiss National Bank on Thursday declined to comment on market talk that it had intervened in the foreign exchanges to sell the Swiss franc, which had surged to its strongest level against the dollar since April last year.

The faster the dollar's fall, the more traders are aware of the threat of intervention from authorities like the SNB or Japan's Ministry of Finance. But the signals from these bodies -- and, more crucially, from U.S. policymakers -- suggests intervention isn't imminent, so the dollar could go even lower.

"Volatility is going to reign supreme over the coming week and into the end of the year," Rosborough at Westpac said.

At 1030 GMT the dollar index, a barometer of its performance against six major currencies, was up a third of a percent on the day at 74.51, bouncing back from a 15-month low of 74.17 earlier in the day.

The greenback was down 0.8 percent against the yen at 86.60 yen, close to the low of 86.29 yen on trading platform EBS hit earlier, its weakest level since 1995. Traders say 85 yen is now in the market's sights.

INTERVENTION THREAT

Traders have been doubting Japanese authorities, once known for their heavy dollar-buying interventions, would step in at this stage to break the fall because the dollar's drop was against a range of currencies, and the yen's trade-weighted gains have not been so sharp. For graphic, click on:

http://r.reuters.com/dys63g

But Japan has stayed away from intervention for more than six years, and officials have repeatedly expressed a reluctance to do so.

Many officials around the world have expressed consternation about the dollar, and U.S. officials have tried but failed to reassure investors they believe in a stronger currency.

"The dollar may be exposed to potential intervention, but so far there have only been limited comments against its weakness," said Roberto Mialich, strategist at Unicredit in Milan.

"It's a sort of 'dead cat bounce' in a sense," he said of the dollar's recovery on Thursday. "We had a sharp drop yesterday and people are taking profits. But the euro remains above the previous high of $1.5060," Mialich noted.

The catalyst for the dollar's latest slide was the Federal Reserve's latest meeting minutes on Tuesday saying that the U.S. currency's fall has been orderly and interest rates will stay low for some time.

The euro was down a third of percent on the day at $1.5080, after rising more than 1 percent on Wednesday to a 15-month high of $1.5145 on EBS.

The dollar was up 0.4 percent against the Swiss franc at 1.0000 francs, having earlier tumbled to just above 0.9900 francs on EBS, its lowest since April 2008.

Some market participants said the SNB had intervened to buy dollars against the Swiss franc earlier, up to $1 billion. But the SNB declined to comment.

(Reporting by Jamie McGeever; Editing by Ruth Pitchford) ((Reuters Messaging: jamie.mcgeever.reuters.com@reuters.net; +44 207 542 8510))

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