Tuesday September 16, 06:36 PM
Dollar down but off lows amid global financial turmoil
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LONDON (AFP) - The dollar fell against the yen Tuesday but was off early lows, boosted by repatriation of funds to the United States amid panic on the world financial markets and a dip in oil prices, analysts said.
The US currency sank to a three-month low of 103.61 yen in morning London trade, before pulling back to 104.51 yen late afternoon, still down from 104.89 yen in New York late Monday.
The dollar was at nearly 108 yen before the collapse on Monday of US investment bank Lehman Brothers (NYSE: LEH - news) sent global stocks plunging, with the financial sector hit hardest.
AIG, one of the world's biggest insurance firms, was seen at immediate risk, adding to nervousness in the markets.
"As equity markets outside the US suffer more than US markets, investments are taken back into the US," BNP Paribas (Paris: FR0000131104 - news) analysts wrote.
"US financials have to re-focus on core business which is often domestic. Non-core assets will be split off and sold out providing (dollar) support."
An easing of oil prices also buoyed the dollar, analysts said.
"Support for the US dollar came from plummeting oil prices. Market participants used this a hint that the US economy will manage to recover," Commerzbank (Xetra: 803200 - news) analysts said.
"With crude now edging towards 90 dollars a barrel, arguments about inflationary pressures are certainly a lot weaker than they were even just a couple of weeks ago," said James Hughes of CMC Markets.
Market participants meanwhile awaited a meeting of the Federal Reserve at which the US central bank was expected to cut interest rates later in the day in a bid to calm the turmoil in the financial markets.
The Fed and other major central banks have pumped billions of dollars into money markets since Monday to boost liquidity. On Tuesday, the European Central Bank, Bank of England and Bank of Japan together injected 134 billion dollars.
The European single currency fell to 1.4164 dollars from 1.4227 dollars late in New York on Monday despite an upbeat economic survey in eurozone powerhouse Germany.
"Concerns over the whole financial system weighed on the market," said Satoru Ogasawara, a foreign exchange strategist for Credit Suisse.
Ogasawara said the US government may need to inject funds into troubled banks to stabilise markets -- but it would not be able to give blanket support for all banks.
The BNP Paribas analysts warned that a rate cut "could signal a sense of panic in the market" while a decision to hold rates could also disappoint.
Elsewhere, sterling fell against the dollar despite news that British 12-month inflation hit a 16-year high point of 4.7 percent in August.
In London trading on Tuesday, the euro changed hands at 1.4164 dollars against 1.4227 late Monday, at 147.59 yen (149.20), 0.7968 pounds (0.7917) and 1.5838 Swiss francs (1.5877).
The dollar stood at 104.51 yen (104.89) and 1.1189 Swiss francs (1.1159).
The pound was at 1.7753 dollars (1.7967).
On the London Bullion Market, the price of gold rose to 779.50 dollars per ounce from 775 dollars late on Monday.
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