Yen and U.S. dollar firm on rush from risk

By Anirban Nag

SYDNEY (BestGrowthStock) – The yen held on to hefty gains on Wednesday, aided by safe-haven inflows as investors’ mood considerably darkened on doubts about the pace of a global economic recovery.

Stocks (.SPX: ) and commodities (.CRB: ) were lower, pulling down higher-yielding currencies like the Australian and New Zealand dollars after data showed U.S. consumer confidence falling to a 10-month low in February.

That triggered concerns about the future of U.S. consumer spending, the main hope for a sustainable economic recovery. The rush to safety benefited sovereign bonds, driving U.S. 10-year Treasury yields down a steep 10 basis points.

The fall in U.S. yields saw the dollar subdued on the yen, at 90.25 yen, having shed nearly 1 percent on Tuesday. The yen gains when risk aversion rises as investors unwind trades that were financed with the low-yielding Japanese currency.

The shift away from riskier assets also tends to benefit Treasuries and the greenback. As a result, the U.S. dollar held sizable gains on other major currencies with the dollar index (Read more about the global trade. ) (.DXY: ), up at 80.877, not far from its 8-mth peak of 81.34.

The euro was subdued, just about holding above $1.35, having lost nearly 0.7 percent on Tuesday.

Traders said sentiment toward the single currency was negative, as it threatened to test support at around $1.3480, which is the 61.6 percent of its move up from $1.2447 to $1.5141 last year on the Fibonacci charts.

The battered euro, was also weak against the yen, trading at 121.85 yen, having dived nearly 1.7 percent on Tuesday.

The euro had been hurt in part by an unexpected dip in the German Ifo index of business sentiment, while French household spending and Italian consumer confidence turned lower.

It was further hurt by a downgrade of Greece’s four largest banks by Fitch, bringing back the country’s woes back to the forefront.

“With the action taking on a more impulsive bias and the daily patterns forming bullish reversals, the short term risks point to additional U.S. dollar strength,” JPMorgan said in a daily note.

“We continue to see risk for the European currencies to extend their recent trends while holding current short positions in euro and the pound.”

Sterling was on the defensive at $1.5435, having lost over 0.4 percent on Tuesday after Bank of England policy makers said further asset purchases under its quantitative easing program were possible.

The focus now shifts to Federal Reserve Chairman Ben Bernanke, who testifies before Congress on Wednesday and Thursday. Traders say, demand for beaten down risk assets and currencies could recover if Bernanke is upbeat about growth.

Still, investors will be looking for any comments on the Fed’s decision late last week to raise its discount rate — the rate charged to banks for emergency loans.

St. Louis Fed President James Bullard on Tuesday said that, if the economy performs as expected, rates were probably on hold into 2011 and that moves to take back some quantitative easing were the natural path.

Stock Report

(Editing by Wayne Cole)

Yen and U.S. dollar firm on rush from risk