Rising Risk Appetite Pushes Dollar Lower

Risk appetite is on the way up again, pushing the dollar lower and the euro higher in Europe Friday.

The improved sentiment emerges at the end of a week in which the U.S. Federal Reserve appeared to have preserved its rather dovish view of the global economy and the European Central Bank poured fresh liquidity into the euro-zone economy through massive one-year loans to the banking system.

This along with some relatively positive economic news over the course of the week has convinced investors that central banks will continue to encourage the recovery and aren't likely to tighten monetary policy again anytime soon.

The need for further monetary accommodation was driven home earlier Friday by news from Japan that its consumer price index had fallen by 1.1% over the last year, the largest decline in the index since it was introduced 38 years ago.

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Nevertheless, optimism was feeding through in to equities with a strong 2.1% rally in the Dow Jones Industrial Average being followed by a 0.8% rise in the Nikkei in Japan and gains of as much as 0.8% on European bourses.

The crude oil market also reflected the better mood, with the price of the August contract on the New York Mercantile Exchange gaining 75 cents from Thursday's close to trade at $70.98 a barrel.

The Swiss franc, which had come under two unconfirmed intervention attacks Thursday, was trading flat against the euro with market participants nervous that the Swiss National Bank will launch another exercise to drive the franc lower. Thursday's intervention, which is believed to have been carried out through the Bank for International Settlements, helped to lift the euro from close to CHF1.50.

Around 0930 GMT, the euro was still up at CHF1.5313, hardly changed from CHF1.5315 late Thursday in New York, according to EBS.

The dollar, however, fell to CHF1.0916 from CHF1.0947 as the U.S. currency suffered from the rise in risk appetite.

Elsewhere, the euro rose to $1.4026 from $1.3988 and to Y134.50 from Y134.01, while the dollar was nearly flat at Y95.89 compared with Y95.86.

The pound rose to $1.6461 from $1.6373.

Dlr Up Vs Yen; FOMC, Stocks Fuel Risk Appetite

Higher Japanese stock prices and a positive outcome from the Federal
Open Market Committee meeting overnight revved up players' risk appetite, lifting the dollar and euro up against the yen in Asia Thursday.

The U.S. currency will likely rise for the rest of this week, some dealers said, because the FOMC did not take additional stimulative measures such as boosting its Treasury purchase program.

Some investors had expected the FOMC might increase its future Treasury buying to support the U.S. economy, which is usually a negative factor for the dollar as the nation's interest rates decline.

"Reading market sentiment is fairly easy today: players are taking positive cues from the FOMC and stock prices to buy dollars and euros," said Jun Kato, a senior dealer at Shinkin Central Bank.

Japan's benchmark Nikkei 225 Stock Average stood at 9822.66 as of 0450 GMT, up 232.34 from Wednesday's close.

The pace of the dollar's climb, however, will likely be slow because players are unwilling to make aggressive bets ahead of non-farm payrolls data and business activity indexes from the Institute for Supply Management due next week, said Gaitame.com's senior dealer Tsuyoshi Ueda.

"Ahead of the data releases, the market lacks a decisive factor to make a strong, long-term trend in the currency market," he said.

Other dealers have similar views, saying Y98 is a cap for the dollar for the time being.

Later in the global day, market participants will turn their attention to U.S. weekly jobless data, and if the result shows an improvement and pushes up U.S. stock prices, the dollar may extend its climbs, dealers noted.

The data may record 605,000 claims, which is slightly better than the 608,000 claims in the previous period, according to a Dow Jones poll of economists.

The euro, meanwhile, rose against the dollar and yen. Dealers said the European currency is expected to keep rising unless European Central Bank officials say something surprising, dealers said. The bank's executive board member Juergen Stark will make a speech later in the day.

So far in Asia, Japanese importers and security firms and non-Japanese commodity trading advisors were seen selling the yen for the dollar, euro and Australian dollar, dealers said.

Swiss franc shaky, dollar steadies after Fed

The euro and the dollar rose against the Swiss franc on Thursday as traders remained jittery about possible intervention by the Swiss National Bank to weaken its domestic currency.

The dollar was underpinned after the Federal Reserve did not expand its programme of buying government and mortgage debt and said at the conclusion of its policy-setting meeting on Wednesday it saw signs the deep U.S. recession was easing.

Traders cited talk of the SNB selling francs for euros and dollars, possibly via the Bank for International Settlements, but both the SNB and BIS declined to comment [ID:nLP72272].

Market participants on Wednesday said that the SNB had been selling the Swiss currency for euros and dollars.

"In the wake of yesterday, people were always going to be nervous and we're in thinner summer markets and that always leaves potential for rumours or nerves to afflict markets," said Jeremy Stretch, strategist at Rabobank in London.

Renewed weakness in the Swiss currency helped the dollar reverse earlier declines against a basket of major currencies.

The euro, however, was little changed against the dollar, but held below a two-week high hit on Wednesday as the market digested the impact of the European Central Bank's massive injection of one-year funds into money markets at Wednesday's tender.

The ECB poured 442 billion euros of one-year funds into money markets on Wednesday with a record 1,121 banks taking up the offer.

"It's a marginal negative for the euro because of the sheer scale and breadth of the take-up but I don't think necessarily the markets are focusing on it too much at this point," Stretch added.

Traders brushed off data showing a sharp fall in euro zone industrial new orders in April, as it merely reinforced the market's view that the region's economy had been weak in the early part of 2009.

Dlr,Euro Hit Multi-Wk Low Vs Yen On Risk Aversion

The dollar and euro fell to their multi-week lows against the yen in Asia Tuesday
as a sharp fall in Japanese share prices increased players' demand for the safe-haven Japanese currency.

The dollar fell to Y95.11, its lowest level since June 1 and the euro dropped to Y131.60, a level unseen since May 26.

"Market sentiment recently has been dollar-bearish and today's sharp drop in Japanese stock prices prompted players to test the Y95-mark," said Shinichi Hayashi, a senior dealer at Shinkin Central Bank.

Japan's benchmark Nikkei 225 Stock Average closed 3.1% down at 9523.01 in the morning session - a three-week low. At 0505 GMT, the average stood at 9538.82.

Players are shying away from accumulating risk-sensitive units such as the euro, dealers said, because they believe risk-aversion movement may strengthen as market players correct their outlook on the U.S. and European economies toward a less optimistic side.

Investors are closely watching the two-day Federal Open Market Committee meeting which begins on Tuesday for clues on the fiscal health of the U.S.

"I'd like to pay attention particularly to the Fed's view of U.S. economic conditions and whether it announces a plan to increase Treasury purchases," Hayashi said.

As of 0450 GMT, the U.S. currency stood at Y95.28. If it falls below Y95.00, it could then drop at pace to Y94.50, said Yuji Saito, head of FX at Societe Generale.

Saito added the euro will likely keep falling because risk-aversion is the main theme of the market now. It declined against the dollar, to $1.3864 in Asia Tuesday from $1.3865 in New York overnight. Dealers said it may slip below Y131.50 and $1.3700 in this global day if stock prices in Europe plunge.

Euro Strength Persists With Rising US Stocks

The euro continues to stay strong against the dollar Friday, with rising U.S. stocks encouraging risk appetite.

The euro is a higher-yielding asset, which attracts investors when market sentiment is positive. The Dow Jones Industrial Average recently was up about 40 points on the day.

The dollar is also down against the yen, as it has recently outshadowed Japan's unit as the major funding currency for riskier bets.

A report that Standard & Poor's Ratings Services raised its opinion on Japan's banking sector and the country's ability to avoid a severe recession is also lending support to the yen

The euro's lead on the lower-yielding yen has waned since its release.

Late Friday morning in New York, the euro was at $1.3929 from $1.3894 late Thursday, while the dollar was at Y96.52 from Y96.62, according to EBS. The euro was at Y134.43 from Y134.22. The pound was at $1.6453 from $1.6341, while the dollar was at CHF1.0841 from CHF1.0868.

However, trading has been volatile and largely rangebound, indicative of the market's uncertainty ahead of next week's Federal Open Market Committee meeting.

Analysts say traders are looking for a new trading catalyst, now that it appears the global recession is ending, but growth is far off. Possible contenders next week besides the FOMC include U.S. housing data; a U.S. Treasury auctioning for $104 billion in two-, five-, and seven-year notes; and a one-year, longer-term refinancing operation by the European Central Bank.

Stronger risk appetite Friday also comes after U.S. Treasury Secretary Timothy Geithner said he sees some signs of stability in the economy and healing in the financial system in an interview with PBS anchorman Jim Lehrer on Thursday.

Encouraging U.S. data Thursday also helped, including a rise in the Conference Board leading indicators index and the Philadelphia Federal Reserve's manufacturing index.

"The problem is that the scope for large equity gains may be harder to find, because it is tough to keep producing positive surprises without some genuine recovery," said Stuart Bennett, a senior foreign exchange strategist at Calyon in London.

Elsewhere, the U.K. pound continues to rebound from lows this week off disappointing U.K. retail sales data. Many analysts say sterling is likely to outperform in the coming weeks, as traders saw its recent decline as an opportunity to buy.

Dollar drops as recovery hopes lift risk appetite

The dollar edged lower against major currencies on Friday, as a recent spate of upbeat U.S. data boosted expectations the global economy was reaching a bottom.

That has made investors comfortable buying higher-yielding currencies such as the Australian and New Zealand dollars as they pared back holdings of the safe-haven U.S. dollar.

"There's a bit of risk appetite with the S&P 500 bouncing off its 200-day moving average yesterday, and this has carried over to today," said Shaun Osborne, chief currency strategist at TD Securities in Toronto. "That's good news for the Aussie, Kiwi (New Zealand dollar), and Canada but bad news for the yen and U.S. dollar."

The positive outlook stemmed from Thursday's data showing the number of people staying on jobless benefits fell for the first time since January, while manufacturing in the U.S. Mid-Atlantic region shrank much less than expected in June.

Moves in the foreign-exchange market were limited, however, with investors awaiting a Federal Reserve policy meeting and economic data next week for more clues about the health of the global economy.

"The markets ... are in a holding pattern," said Gareth Sylvester, senior currency Strategist at HiFX in San Francisco. "There's no real consensus to drive the U.S. dollar fundamentally weaker or stronger. Overall, the market is still trying to second guess whether or not we're in a long-term bull market for equities."

In late New York trading, the euro was up 0.3 percent against the dollar at $1.3947 EUR=, after hitting a session peak of $1.4011, according to Reuters data.

The euro has lost momentum above $1.40, and analysts said the currency is still beset with Europe's economic outlook after the European Central Bank said this week that European banks may face another $283 billion in losses by the end of next year.

The dollar fell 0.4 percent to 96.22 yen JPY=, while the euro was down 0.1 percent at 134.21 yen EURJPY=R.

HIGHER-YIELDING CURRENCIES

Adding to recent optimism, International Monetary Fund First Deputy Managing Director John Lipsky on Friday pointed to signs the decline in global output has moderated and said the IMF is likely to revise up its 2010 economic growth forecasts.

Dollar Bounces Back Ahead Weekend

The U.S. unit found additional support on a decline in risk appetite that sent traders

from higher-yielding currencies, such as the euro, pound and Australian dollar.

This was also a function of profit-taking after the dollar declined to one-week lows a day earlier against the euro, U.K. pound, Swiss franc and Australian dollar.

Currency markets have been very volatile over the last week on conflicting signs of economic stabilization and fears over the U.S. Treasury auctions.

Comments reported Friday from Japanese Finance Minister Kaoru Yosano swung the pendulum in favor of the dollar.

Yosano said Japan, the world's second-largest foreign owner of Treasurys, would keep buying the securities, easing worries that foreign investors may turn their back on U.S. debt.

The dollar also found some buyers on a Wall Street Journal report suggesting the Federal Reserve is unlikely to expand its purchases of Treasurys and other assets at the June 23-24 policy meeting.

Friday afternoon in New York, the euro was at $1.3995, down from $1.4107 late Thursday. The dollar was at Y98.39, up from Y97.59, according to EBS. The euro was at Y137.75, up slightly from Y137.68, and the U.K. pound was at $1.6436, down from $1.6589. The dollar was at CHF1.0807, up from CHF1.0707 late Thursday.

Data out of Europe earlier Friday also weighed on the euro. It showed euro-zone industrial production slumped by the sharpest annual rate on record in April. The outcome was much weaker than anticipated, and the data suggested the recession is far from being over.

"As the global economic tide rises, some ships look in better shape than others," according to a research note from Barclays Capital. "Europe remains the laggard."

U.S. data Friday had little impact on currencies. U.S. import prices rose 1.3% in May, the biggest monthly rise since July 2008 and close to economists' expectations for a 1.5% increase. A Reuters/University of Michigan survey on consumer sentiment showed a modest rise in June from May.

Germany's deputy finance minister said foreign exchange won't be an issue at this weekend's Group of Eight meeting, but currency traders are nonetheless watching for any surprise announcements or comments by officials on the sidelines.