RTRS: Dollar up vs euro, credit worries underpin yen
By Chikako Mogi
TOKYO (Reuters) - The dollar rose against the euro on Wednesday as market players remained skeptical that the latest U.S. measures to boost consumer lending would ease concerns about the financial crisis.
Market players were doubtful that successive U.S. steps aimed at restoring confidence in the financial system and shoring up the deteriorating economy would be sufficient, traders said.
Worries over the global economic downturn and credit jitters have kept investors wary of taking risks, limiting selling of the dollar and yen, traders said.
While the yen has been outperforming overall on growing investor confidence in its safe haven status, sentiment toward the dollar may be turning bearish, some traders said.
"There have been so many steps taken by the U.S. authorities, leaving the impression they are doing anything they can do, but not necessarily with consistency," said Mitsuru Sahara, a senior manager at Bank of Tokyo-Mitsubishi UFJ.
"The market reaction has become increasingly cool, as it has become accustomed to new measures coming one after the other without feeling that the market has hit a bottom," he said.
The U.S. Treasury and Federal Reserve announced on Tuesday further measures worth about $800 billion to support the debt and mortgage-backed securities issued by mortgage giants Fannie Mae (FNM.P: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.P: Quote, Profile, Research, Stock Buzz), as well as measures to support asset-backed consumer lending.
The euro eased 0.8 percent to $1.2955, after hitting a three-week high of $1.3081 hit on Tuesday on trading platform EBS as the new rescue steps eased credit concerns and eroded the dollar's appeal as a safe haven, traders said.
The dollar edged down 0.1 percent against the yen to 95.14 yen, while the Nikkei average .N225 lost 1.3 percent.
The euro fell 0.9 percent against the Japanese currency to 123.30 yen as the Nikkei slipped. .T
The dollar index .DXY, which measures the value of the greenback against a basket of currencies, was up 0.5 percent.
The dollar has been supported by repatriation flows and risk aversion despite the slumping U.S. economy and financial crisis, thanks to its status as the world's most liquid currency and key global settlement currency.
But some traders said safe-haven demand for the dollar was weakening.
"In the short term, the economic measures should be taken positively. But the scale of U.S. fiscal spending has been expanding, which could be negative for the dollar in the long term," said Akira Takeuchi, treasury department manager at Chuo Mitsui Trust and Banking.
"There may be a change in the trend of dollar-buying on risk-aversion and the market may return to focus on U.S. economic data," he said.
In contrast, the yen's safe-haven role is sustained because of relatively light damage to the Japanese financial system and economy compared to that of the United States, analysts said.
The yen has gained as Japanese investors sold overseas assets while others have unwound carry trades in which investments in high-yielding assets were financed by the low-yielding yen.
A report on Tuesday showed the U.S. economy shrank at a faster rate in the third quarter than was originally estimated, while a fall in U.S. house prices accelerated, suggesting the Fed may need to cut interest rates further.
The Dow and S&P 500 gained on Tuesday on optimism that the new measures could revive the housing market and free up consumer lending, but the Nasdaq fell as technology stocks slid on worries about falling demand. .N
Sahara at Bank of Tokyo-Mitsubishi UFJ said trading volume remained light, and as the market was not near any key levels traders were reluctant to push prices sharply in either direction, keeping them in narrow ranges.
