Tuesday, Dec 01, 2009


 
   By Bradley Davis 
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--The dollar remained down against the euro Tuesday morning as a steady drip of positive global economic data and easing concern over the Dubai debt crisis helped swing investor sentiment in favor of riskier assets.

"If you go back just a couple of days, the risk-depleting sentiment stemming from Dubai has ... largely dissipated for now," benefiting the euro and other higher-yielding currencies, said Robert Lynch, currency strategist at HSBC in New York.

Instead, the steady drumbeat of a recovering economy--albeit one that still shows weak spots, particularly in the U.S. labor market--is once again calling the currency market's tune, analysts said.

Investors will be looking toward the 10 a.m. EST release of the monthly survey of the U.S. manufacturing sector released by the Institute for Supply Management as a gauge of whether the economic picture continues to improve. Activity is expected to slip slightly.

Tuesday morning, the euro was at $1.5087 from $1.5015 late Monday, according to EBS via CQG. The dollar was at Y86.85 from Y86.45, while the euro was at Y131.07 from Y129.80. The U.K. pound was at $1.6575 from $1.6456. The dollar was at CHF1.0012 from CHF1.0043.

The Dollar Index, which tracks the greenback against a trade-weighted basket of six currencies, was at 74.504 from 74.788.

A surprise overnight meeting of the Bank of Japan helped the dollar gain back some ground against the yen, but the greenback still hovered around Y87 in New York morning trading, only slightly higher on the day. The dollar had peaked overnight at Y87.54 after the Japanese central bank called the emergency meeting in response to government criticism that it wasn't doing enough to stop the yen's advance and preserve the economic recovery.

The central bank left key interest rates unchanged and increased liquidity by Y10 trillion in what was being seen largely as a political gesture rather than a shift in policy.

With most central banks keeping the spigots of liquidity opened full-blast, investors can be assured of continued pools of money sloshing around the financial system that, in good times, can help fuel trades in riskier assets.

Australia's central bank overnight bucked the ultra-loose monetary policy trend by announcing an expected increase in key interest rates by 0.25 percentage point, putting its key rate at 3.75%. Because analysts had expected the increase, the Australian dollar had already appreciated ahead of the announcement, and actually lost some ground. It has since gained on the U.S. dollar.

Meanwhile, the Swiss National Bank said overnight it would continue to act decisively to prevent the Swiss franc from strengthening against the euro, SNB President Jean-Pierre Roth said.

"We will stick to our strategy to act decidedly against an appreciation of the Swiss franc," Roth told reporters in Frankfurt.

"Markets have integrated this well," he added.

The SNB first announced its strategy of acting against Swiss franc strength in the spring, an attempt to support Switzerland's export-driven economy.

Since then, the SNB is thought to have intervened in currency markets four times to weaken the franc, but it has never confirmed the total number of interventions.

Several times in recent months the franc has appreciated to levels against the dollar and euro greater than what the SNB is thought to tolerate, but the SNB has not intervened, keeping investors guessing.

Overnight economic data released in China, including a steadily strong manufacturing index, along with rising manufacturing activity in the euro zone, helped boost overall investor sentiment, driving stocks and higher-yielding currencies higher. U.S. stocks opened higher, giving additional support to the euro and other higher-yielding currencies.

Investor sentiment also continued to improve as details of the Dubai World debt restructuring plans emerged and as it became clear that there wouldn't be any immediate domino effect from the decision by the Dubai state-owned conglomerate to delay debt repayments for about six months. 


   Canada Morning

The Canadian dollar was substantially higher Tuesday morning, gaining more than 1% since late Monday, as it benefits from the general retreat in the U.S. dollar as well as gains in crude oil futures.

The U.S. dollar is trading at C$1.0442 from C$1.0558 late Monday. The U.S. dollar hit a session low at C$1.0427 in earlier trading, its lowest level since Nov. 16, according to EBS via CQG.

The Canadian dollar is supported by the oil rally as oil bulls attempt to retest $79.70-80 territory, said Ashraf Laidi, chief market strategist at CMC Markets.

A better-than-expected U.S. ISM manufacturing survey for November later Tuesday or ADP employment report on Wednesday could prompt crude oil futures to break through those levels, he added.

-By Bradley Davis, Dow Jones Newswires; 212-416-2654; bradley.davis@dowjones.com

(Don Curren in Toronto, Nicholas Hastings in London and Roman Kessler in Frankfurt contributed to this article.)

(END) Dow Jones Newswires

December 01, 2009 09:44 ET (14:44 GMT)