Yen once again is overall gainer as risk aversion rises
SAN FRANCISCO (MarketWatch) -- The dollar extended gains against all major counterparts Tuesday, with the familiar exception of the yen, as investors' risk appetite faded in line with weakening equity markets and continuing global economic concerns.
The dollar index , a measure of the greenback against a trade-weighted basket of six major currencies, rose to 87.250 from 85.977 in late North American trading Monday.
Any lingering bullish effects of China's weekend announcement of a $586 billion stimulus package faded Tuesday. There were no U.S. economic data, and bond markets were closed in observance of Veterans Day.
"Dollar and yen were largely firmer in thin U.S. holiday trading, as risk aversion crept back up," wrote currency analysts at Brown Brothers Harriman. "Optimism on China's stimulus plan gave way to a more sober global economic outlook."
A further grind lower in oil prices also helped the U.S. dollar, though it was also somewhat bullish for the Japanese yen, said Kathy Lien, director of currency research at Global Forex Trading. See Futures Movers.
"The strong rise in commodity prices that we have seen throughout 2006 and into the summer of 2008 was driven by the frothy expectations that the global economy will continue to expand at a healthy pace," Lien said. "That of course has been proved to be false."
The dollar slipped against the yen to 97.59 yen, down from 97.93 yen late Monday. The euro also fell sharply to 122.26 yen, down about 2%.
The euro fell to $1.2507 from $1.2748 late Monday.
The yen -- and to a lesser degree, the dollar -- have served as barometers of risk aversion in global financial markets, gaining when fears are running high. Deleveraging and liquidation in the face of financial turmoil sharply boosted both currencies in October.
U.S. equities finished with losses, following Asian and European markets, and contributing to risk aversion. See Market Snapshot.
Strategists at BNP Paribas said further signs of relief in world money markets should help to eventually stabilize equities. Close attention will be paid to commercial-paper market data set for release Thursday, they said.
Brighter ZEW
The euro fell despite a stronger-than-expected rebound by the ZEW German economic sentiment indicator, gleaned from a monthly survey of financial and investment professionals.
The ZEW sentiment index rebounded to -53.5 in November from -63.0 the previous month, but remains very low amid worries about the German economic outlook.
A decline in the ZEW inflation expectations index, meanwhile, should offer the European Central Bank further reassurance that commodity prices won't contributed to sharp rise in core inflation, said Jennifer McKeown, European economist at Capital Economics.
McKeown expects the ECB to cut its key rate to 1.5% from its current level of 3.25% by mid-2009.
In England, the British Retail Consortium's monthly barometer released Tuesday showed sales fell 2.2% on a same-store basis compared to October 2007. That marks the first drop in total sales since April 2005, the BRC said
