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FOREX-Yen, dlr benefit from skepticism on govt plans

Published 02/12/2009, 06:22 AM
Updated 02/12/2009, 06:24 AM
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* Dollar, yen gain as investors seek 'safer' assets

* Dlr at 90.00 yen, euro down 1.1 percent at 115.40 yen

* Markets unimpressed by $789 bln U.S. package agreement

* Relative high-yielding currencies fall the most

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By Jamie McGeever and Kylie MacLellan

LONDON, Feb 12 (Reuters) - The dollar and yen strengthened broadly on Thursday, boosted by their perceived safety in the eyes of investors concerned about the potency of government policies to combat recession and ailing banks.

This jittery environment across financial markets sent global equities sharply lower and fuelled strong demand for government debt, while the biggest losers among major currencies were the Australian and New Zealand dollars, and sterling.

The Bank of England's quarterly inflation report on Wednesday -- where it said it is ready to take unconventional policy easing steps and indicated it may be comfortable with a weaker exchange rate -- also weighed on sterling, traders said.

"The Japanese own more of the world than the world owns of Japan and when risk aversion rises people tend to bring money home," said Paul Robson, currency strategist at RBS in London.

"The Japanese have more money than most to bring home. I think it's a simple as that," he said, adding that the flip side of this is that relatively higher-yielding and "riskier" currencies like the Australian and New Zealand dollars suffer.

Robson and others said market disappointment lingered after the U.S. bank rescue plan on Tuesday fell short on detail. Investors remained wary despite U.S. Congress reaching a compromise deal on the economic stimulus package.

At 1045 GMT the dollar was down 0.5 percent at 90.00 yen and the euro was down 1.1 percent against the Japanese currency at 115.30 yen.

The dollar index was up 0.5 percent at 86.29.

The euro was down 0.6 percent against the greenback at $1.2815 but was up 0.9 percent against the struggling UK pound at 90.40 pence.

Knocked by the BoE's statement that it may take steps such as buying gilts to boost the money supply, the pound was down 1.4 percent at $1.4186.

The Australian dollar was down 1.2 percent at $0.6472, also hit by parliament rejected the government's A$42 billion ($28 billion) economic stimulus plan.

U.S. SKEPTICISM

Japanese stocks fell 3 percent, major European bourses were down more than 1 percent and U.S. futures pointed to the three major U.S. indices opening down 1 percent.

On the data front, a record fall in euro zone industrial production in December weighed broadly on the euro and strengthened the view that the European Central Bank will cut rates again soon.

Several ECB officials on Wednesday confirmed market expectations the central bank will cut interest rates next month, something which ECB President Jean-Claude Trichet indicated after keeping rates on hold at 2 percent last week.

Trichet speak again later on Thursday.

Markets could get a fresh steer on the U.S. economy later on Thursday from January retail sales figures at 1230 GMT. Total sales are forecast to fall 0.8 percent after tumbling 2.7 percent in December, while sales excluding autos are seen 0.5 percent down after a record 3.1 percent plunge in December.

"The weak tone of the data will provide an offset to what little enthusiasm prospective passage of the U.S. fiscal package may foster," Daragh Maher, deputy head of currency strategy at Calyon, said in a note.

"The weakness in Asian equities overnight suggests that disappointing data and the lack of detail so far from (U.S. Treasury Secretary Timothy) Geithner will win out over fiscal optimism, pointing to modest gains for the dollar and yen."

U.S. congressional negotiators reached a deal on Wednesday on $789 billion in emergency spending and tax cuts aimed at pulling the economy out of a deepening recession, and voting on it could take place as early as on Thursday.

Currency investors will also be alert to headlines that may start to hit the wires ahead of the meeting in Rome Friday of Group of Seven finance chiefs. For more on the G7, see.

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