Tuesday, December 8, 2009

Euro Falls To 1-Month Low Vs Dollar On Credit Downgrades

. Tuesday, December 8, 2009

By stockOzone team

The euro fell to a one-month low against the dollar on Wednesday as investors unwound positions in riskier assets ahead of the year-end, prompted in part by rising debt woes for Greece and Dubai.

Worries about Britain's fiscal health continued to pressure sterling, which slid to an eight-week low against the dollar.

Fitch Ratings downgraded Greece on Tuesday, while Moody's cut the ratings of six Dubai-linked issuers after concluding that no "meaningful" government support would be provided to top firms like DP World.

The timing of Greece's downgrade, coming soon after the Dubai shock, led to a sell-off in the euro, stocks, commodities and higher-yielding currencies.

"Risk aversion is dominating the market," said Mitsuru Sahara, chief manager of currency derivatives trading at Bank of Tokyo-Mitsubishi UFJ. "Investors are nervous, fearing Greece may not be the last to have its sovereign debt ratings lowered."

Both the yen and the dollar tend to gain when worries about a global recovery or concerns about debt defaults rattle markets.

The euro fell as low as $1.4665, its lowest since early November but later gained to $1.4725, up 0.2 percent from late U.S. trade. It had shed 0.8 percent on Tuesday. Traders say immediate support is seen at $1.4625.

The dollar index hit a fresh one-month high of 76.331 .DXY in early Asian trade before slipping back to 76.162, down 0.2 percent.

Sterling hit an eight-week trough against the dollar at $1.6224, before crawling back to $1.6253, down 0.2 percent on the day, according to Reuters data.

Soft UK data, a hefty fall in the value of Royal Bank of Scotland's shares and worries about the state of Britain's public finances and AAA rating have weighed on sterling.

The Bank of England will start a two-day policy meeting later in the day, with a decision on monetary policy to be announced on Thursday.

The BoE's Monetary Policy Committee has likely nearly finished with its quantitative easing program but is not expected to raise interest rates in coming months.

The yen kept most of its broad gains made the previous day when investor risk aversion lifted the Japanese currency.

The dollar was little changed from late U.S. trade at 88.45 yen, well off a one-month peak of 90.78 yen reached late last week.

Charts indicate the yen could advance to as far as 87.80 yen per dollar, while support is expected around the 88.80 yen mark.

The euro inched up 0.3 percent to 130.26 yen, after it shed more than 2 percent on Tuesday.

Sterling slipped 0.2 percent against the yen to 143.70, having dropped more than 2 percent on Tuesday.

"Moves to cut back on risk are making the yen investors' favorite currency at the moment, even though there are few factors that would inspire investors to pick up the yen aggressively," said Shuichi Kanehira, senior vice president of the forex division at Mizuho Corporate Bank.

The yen is seen extending gains against major currencies, likely testing a 14-year peak versus the dollar early next year, or even before this year ends if new factors that further stoke credit jitters emerge, traders said.

The dollar struck a 14-year low of 84.82 yen on trading platform EBS late November when fears of a possible Dubai debt default prompted investors to cut carry trades and risk exposure.

Japan's economy grew 0.3 percent in the third quarter, sharply less than a preliminary estimate, with the country's recovery from its worst postwar recession still shackled by slow capital spending, data showed on Wednesday.

Disclosure: Author does not own any of the stocks discussed here.

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