KEY POINTS:
TOKYO - The US dollar hovered near a record low against the euro yesterday, hampered by expectations that the Federal Reserve will cut interest rates to counter the slowdown of the United States economy.
The greenback has come under pressure after US payrolls shrank for the first time in four years, cementing expectations for the Fed to cut interest rates by at least a quarter-percentage point next week.
"With the market's attention turning to the US economy, European currencies, and especially the euro, are attracting buying," said Akira Kato, senior foreign exchange manager for the Bank of Tokyo-Mitsubishi. "If the euro breaks above the record high of US$1.3853 we could see a move towards $1.40."
European Central Bank President Jean-Claude Triche lent support to the euro by saying the bank's monetary policy remained accommodative.
Investors took that to mean the bank could keep rates on hold for some time or possibly raise them again.
The euro stood at US$1.3835 early yesterday, near July's $1.3853 - the highest figure since the launch of the European currency in 1999.
The US dollar's trade-weighted index stood at 79.671, hovering near a 15-year low of 79.603 on Tuesday.
Against the yen, the dollar slipped around 0.2 per cent to 114.05. yen Higher-yielding currencies gave up ground after rising against the yen on Tuesday as US equities rallied. The Australian dollar shed 0.3 per cent and sterling fell 0.4 per cent.
Japan's Nikkei share average rose 0.36 per cent. That paled compared with the sharp gains in US shares on Tuesday and lacked the punch to lift higher-yielding currencies against the yen.
With investors still worried about turmoil in credit and money markets stemming from the problems in the US mortgage sector, the environment does not seem suited for investors to jump back into carry trades, traders say.
Kato said the yen's retreat against higher-yielding currencies was attributable to the unwinding of short-term positions and that "it isn't yen-selling based on interest rate differentials".
Carry trades, which involve selling low-yielding currencies to buy higher-yielding currencies and assets to benefit from yield differentials, tend tobe popular when market volatility is low.
Midway through last month, the US dollar dropped to a 14-month low of 111.60 yen on EBS as turmoil in credit and equities markets eroded investors' appetite for risk and prompted an unwinding of carry trades.
- Reuters
