21.11.2008 21:33

American focus: [M]

The dollar was poised for a third weekly gain against the euro as a plunge in global stocks increased demand for the safety of U.S. government debt.
The yen increased versus the euro, the dollar, the Brazilian real and the Mexican peso on speculation investors will sell higher-yielding assets and pay back low-cost loans in Japan.

“It’s all about risk in this emotional market,” said Jacob Oubina, a currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “Risk aversion is still prevalent.”
The Standard & Poor’s 500 Index plunged 14% this week, its second-biggest drop since World War II, after U.S. economic reports depicted a deepening recession and lawmakers postponed a vote on a plan to salvage the auto industry. Treasuries surged this week, pushing the 10-year note’s yield to 2.99 percent yesterday, the lowest level since at least 1962.

“There’s strong possibility that the yen will continue appreciating as the global recession may deepen,” said TohruSasaki, chief currency strategist in Tokyo at JPMorgan Chase & Co. and a former chief currency trader at the Bank of Japan. “It’s an environment where losses in cross-yen currencies are likely to be even bigger than those in the dollar-yen.”
Japan’s currency will advance to 87 against the dollar and 103 per euro by year-end, according to JPMorgan.

The euro may gain 16 percent against the dollar in the next 12 months as demand in China drives up oil prices, making the U.S. currency less attractive, Barclays Capital said.
Two-thirds of the euro’s 22 percent slide since the July peak of $1.6038 stems from falling oil, Barclays said. Crude oil may rebound after dropping 67 percent from a record $147.27 a barrel on July 11 as the Chinese economy expands, the firm said.
The Fed’s record injections of liquidity to stabilize the financial system have driven the overnight lending rate between banks to less than half the 1 percent target set Oct. 29. The gap is shifting investor focus toward the amount of money in the system as a better gauge of Fed intentions.
“I don’t think there’s a way of avoiding the fact that extremely low interest rates and excess liquidity are negative for the dollar,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney.