Reuters: US Dollar Report: FOREX-Dollar upbeat after growth worries hit riskier assets

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FOREX-Dollar upbeat after growth worries hit riskier assets Jun 22nd 2012, 03:32 Thu Jun 21, 2012 11:32pm EDT * Dollar index holds near 1 week high * Euro, commodity currencies steady after big declines * Growth worries, banks' ratings downgrade sap risk appetite * Merkel, Hollande, Monti, Rajoy meet at 1200 GMT By Antoni Slodkowski TOYKO, June 22 (Reuters) - The safe-haven U.S. dollar hovered near a one-week high against a basket of major currencies on Friday, supported by a long-anticipated ratings downgrade of the world's major banks by Moody's while traders await the outcome of a European leaders' meeting later in the day. The dollar had staged its biggest rally in over three months after key surveys of business activity from China to the euro zone and the United States darkened the outlook for the world economy. The dollar index last traded at 82.232, having rallied nearly 1 percent in the previous session. It stalled at the 50 percent retracement of its fall in June, sustained on the back of expectations for more easing by the Federal Reserve. "Investors sought shelter in safe haven assets after the Moody's downgrade, which reminded them that the euro zone problems have morphed into a very serious global crisis," said a senior spot trader at a major Japanese bank based in Tokyo. Against the yen, the greenback eased 0.1 percent to 80.17 , after a rally that had topped out at a five-week high around 80.34. The move was highly unusual, as the yen normally tends to gain in times of heightened uncertainty and suggests that investors are still fretting over Japan's economic problems. "Short-term accounts and hedge funds sold off the yen as Japan's fiscal woes once again came into light, with the ruling party split over a vote on a sales tax hike," said the trader. Bickering in the Democratic Party of Japan, which may result in snap elections, will further undermine the unpopular Japanese Prime Minister Yoshihiko Noda's ability to tackle the country's massive debt that is already twice the size of its $5 trillion economy. The shift away from riskier assets came after China's factory sector shrank for an eighth straight month, business activity in the euro area contracted for a fifth month and U.S. manufacturing grew at its slowest pace in 11 months. As a result, the euro stood at $1.2557, having pulled away from this week's peak of $1.2748 set on Monday. It came close to testing major support at $1.2520, a low carved out in early Asian trade on Monday in reaction to initial Greek exit poll results. Traders said a break of $1.2520 would signal that a top at around $1.2748 has formed, opening the way for a downside test to as far as $1.2290, the low for this month set on June 1. Commodity currencies were hit hard as well, with the Australian dollar licking wounds after suffering its biggest one-day percentage fall in six months. The Aussie bought $1.0054, having dropped more than 1.3 percent from Thursday's high of $1.0205. Good support is seen at $0.9979, the 38.2 percent retracement of its June 1-20 rally. Keeping investors on edge, Moody's late in New York on Thursday cut the credit ratings of 15 global banks including JPMorgan and Morgan Stanley. Markets had already been bracing for the downgrades, which Moody's had flagged earlier in the year. If there was any solace to be found, it was that Morgan Stanley's rating was cut by two notches to Baa1, instead of a bigger three-notch downgrade that Moody's had threatened in February, traders said. "The focus now turns to the EU FinMin meeting and mini EU Summit of the leaders of Germany, France, Italy and Spain today," analysts at BNP Paribas wrote in a note, adding this meeting should lay the groundwork for the EU leaders summit next week. Friday's meeting will search for ways to achieve fiscal and banking union in the euro zone and, more urgently, it may also be the occasion for Spain to formally request assistance of up to 100 billion euros for its struggling banks. BNP analysts said any positive noises from the meeting should reaffirm their expectations for the euro to rise against the greenback from here as the market remained vulnerable to a short squeeze in the euro and a U.S. dollar sell-off. Another relief for the euro on Thursday was a successful sale of bonds by Spain, which managed to raise 2.2 billion euros in the debt market, albeit at a high cost. There were also reports the ECB was considering easing ratings rules on debt it accepts for repo operations, a move that would greatly help Spanish banks borrow. Link this Share this Digg this Email Reprints

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