Monday, October 31, 2011

FOREX-Dollar touches new low on yen, euro holds firm

SYDNEY: The dollar edged to a fresh record low against the yen early in Asia on Monday, Oct 31 as stops were triggered in very thin trade, keeping alive the threat of intervention from Japanese authorities.

The dollar was at 75.77 yen , having briefly fallen as low as 75.31 on EBS, surpassing recent lows around 75.64. Stops were triggered after it fell below 75.60, traders said.

The euro also lost a little ground on the yen, reaching 107.14 from last Thursday's high of 108.13.

The move came as the euro held onto most of last week's gains against the dollar, although uncertainty about a possible interest rate cut on Thursday by the European Central Bank could limit its upside for now.

Most analysts doubt Mario Draghi will ease at his first meeting as ECB president, but there is an outside chance for such a move to give European leaders more time to finalise details of last week's euro zone summit deal.

An Italian debt sale on Friday, which saw Italy pay record high costs to borrow on the debt market, underlined concern that the latest deal still leaves much to be resolved.

Indeed, Europe's debt crisis looked set to dominate the summit of Group of 20 leading economies in France from Nov. 3-4.

All this could at least put a temporary cap on the euro, which reached a seven-week high around $1.4247 on Thursday. It was last at $1.4146, versus $1.4155 late in New York Friday. The common currency was on track to end the month nearly 6 percent higher, its best monthly performance in just over a year.

"I still think there's a bit of risk that markets squeeze a bit higher, but over the next week or so, there's a chance we see some of these gains reverse," said Grant Turley, strategist at ANZ.

The U.S. Federal Reserve also meets this week although improved U.S. data may have lessened the urgency for further monetary easing.

Fed Chairman Ben Bernanke though is likely to repeat his disappointment at the pace of recovery and explore further options for supporting growth in face of the considerable risks.

This means the dollar is likely to struggle as well, leaving the yen as the least unattractive among the G3 currencies, a headache for the Japanese authorities which are trying to keep their currency from strengthening further.

Commodity currencies also clung to last week's hefty gains with the Australian dollar at $1.0702 , not far off an eight-week high of $1.0753 set last Thursday.

The prospect of an interest rate cut by the Reserve Bank of Australia on Tuesday, however, could cap its upside. A small majority of analysts polled by Reuters on Friday expect a 25 basis point cut to the 4.75 percent cash rate. - Reuters

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