10:17 PMDollar Lifts As Fear Returns To Currency Markets
NEW YORK -- The dollar rose broadly in New York trade Wednesday as Middle East violence, Japan's nuclear crisis, and euro zone debt convulsions prompted a renewed interest in the greenback as an attractive safe-haven option.
Notably, the dollar traded up to session highs against the Swiss franc and reversed a trend of the bulk of safe-harbor flows pouring into the Swiss currency. The dollar had recently plumbed several record lows against the Swiss franc. In part, the Federal Reserve policy of persevering with ultra-loose monetary policy--along with still-soaring oil prices that threaten to stoke inflation--had conspired to limit the appeal of the greenback.
Last week's intervention by the Group of Seven had stabilized markets to a great degree. But there were signs that that tranquility was fading quickly, said analysts.
"The euphoria is wearing off after G-7 intervention," and edginess has returned to foreign-exchange markets, said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Conn.
Most reports that crossed traders' screens Wednesday had an unnerving effect and caused inflows into the greenback.
Five-year credit default swap protection on Israel's sovereign debt widened to 157 basis points, up from 149 basis points earlier, after reports of explosions near the entrance to Jerusalem. Police put the number of injured at 35 injured when a bomb exploded at a bus stop near that city's central bus station, officials said. The dollar strengthened after news of these explosions.
The euro-zone debt crisis reared its ugly head again with peripheral bond markets under pressure and the currency showing strain as a torrent of risks including a key Portuguese austerity vote raised nerves in the region once again.
Portugal will go ahead with a key parliamentary vote Wednesday on fresh austerity measures proposed by Prime Minister Jose Socrates. Confusion over the status of this vote caused overall choppy conditions in the euro-dollar pair in New York.
An erroneous report of a vote postponement caused fleeting flows into the euro as a delay was perceived by some traders to be better than speculated rejection of Portugal austerity measures, said Aroop Chatterjee, chief foreign exchange quantitative strategist at Barclays Capital in New York.
Contributing to negative euro sentiment, negotiations on boosting the euro-zone's provisional bailout fund and cutting the borrowing costs on Ireland's emergency loans have stalled, an EU diplomat said Wednesday, ahead of a key summit in Brussels this week.
The euro has enjoyed a strong start to the year, supported by expectations the European Central Bank will raise its key interest rate. But the resurfacing of debt concerns in the region threaten to melt some of the euro's recent rise to near four-month highs, said analysts.
The euro recently traded down to session lows of $1.4099 from $1.4195 late Tuesday, according to EBS via CQG.
The dollar also moved to a high of CHF0.9088 from CHF0.9036.
There were no signs that there was further intervention to stem the yen's strength in the midst of an unresolved nuclear crisis, and many analysts predicted that the Bank of Japan would have to go it alone on further endeavors into markets.
The dollar was recently at Y80.92 from Y80.95 late Tuesday, according to EBS via CQG.
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