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.