RTRS: Dollar firms vs euro, yen despite stock market rise
By Chikako Mogi
TOKYO (Reuters) - The dollar rose against the euro and yen on Tuesday, shrugging off signs of receding risk worries such as rising share prices and falling interbank lending rates, as repatriation moves kept demand strong for the U.S. currency.
The dollar got a boost from Federal Reserve Chairman Ben Bernanke's testimony before Congress on Monday endorsing more government spending to stimulate the economy, even if such a move could worsen the already huge U.S. budget deficit and weigh on the dollar long-term.
A bleak outlook on the global economy and expectations for more monetary easing worldwide could also support the dollar as other major central banks such as the European Central Bank have more scope for aggressive rate cuts compared to the Fed, whose policy rate is already low at 1.5 percent, traders said.
Tight credit conditions and slumping stock markets had helped bolster demand for the dollar as a save-haven currency, along with the yen.
"The dollar's strength against major currencies despite the rise in stocks and worries of another stimulus aggravating the budget deficit shows demand remains strong to use the dollar to settle finance needs," said Hiroshi Yoshida, a currency trader at Shinkin Central Bank.
"It shows investors are still selling assets for cash, and that the general repatriation flows are driving the market and supporting the dollar," he said.
As financial markets regain some stability, investors' focus is shifting from fears of the worst of the credit crisis to economic fundamentals and monetary policy, traders said.
Bernanke said the economy was expected to be weak for several quarters and there was some risk of a protracted slowdown.
Fed policymakers meet next Tuesday and Wednesday, and economists and investors widely expect another rate cut.
The dollar was up 0.1 percent against the yen at 102.00 yen, with traders expecting the pair to stay in a narrow 101.50-102.50 yen range on Tuesday.
The euro was little changed at $1.3340, but was likely to be weighed down by deteriorating economic conditions in the euro zone and concerns about European banks' health, traders said.
The single currency was down 0.1 percent against the yen at 135.94 yen.
The Australian dollar fell 0.9 percent to 71.05 yen.
The Nikkei average .N225 was up 3.5 percent.
The dollar's gains came despite London interbank offered rates for overnight dollars falling to a four-year low near the Federal Reserve's target rate of 1.5 percent on Monday.
