US dollar steadies

The US dollar rose against the yen on Thursday, but was little changed against the euro, after gains in world stock markets and an interest rate cut by the Federal Reserve on Wednesday helped ease the recent flight into the dollar. Adding to pressure on the yen was growing speculation that the Bank of Japan will cut interest rates by a quarter percentage point on Friday.
The US dollar also edged higher against the euro in late trade, although it pared most of its gains, fuelled by month-end demand from fund managers seeking to square their books or rebalance their portfolios. "Currently, US dollar moves are largely reflecting equity trading and vice versa, with the dollar and equities dominated by swings between risk aversion and risk appetite," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. "The yen faces additional risks as the BoJ decides whether to cut interest rates," he added.
In late trading in New York, the dollar climbed 1.2 percent against the yen to 98.60 yen, extending its recovery from a 13-year trough just below 91 yen touched on EBS late last week. The euro was down 0.2 percent at $1.2930 in volatile trade, pulling away from intra-session highs at $1.3300, but well above a 2-1/2-year low of $1.2329 hit this week on electronic trading platform EBS.
Fund managers world-wide are expected to buy substantial amounts of dollars as the month-end approaches to neutralise hedges because of the reduction in their portfolios. The Intercontinental Exchange's dollar index, which measures the dollar's value against six other major currencies, was up 0.1 percent at 84.652. Data released earlier showing a smaller-than-expected contraction in the US economy in the third quarter underpinned sentiment on risky assets, including higher-yielding currencies.
Still, the fall in US gross domestic product in the last quarter was the sharpest contraction in seven years. The rebound in stocks and high-yielders came after the Federal Reserve reduced borrowing costs by a half percentage point to 1.0 percent on Wednesday and left the door open for further easing of monetary policy.
The Fed on Wednesday also approved currency swap lines with central banks in several major emerging countries, making dollars available to help them deal with the credit crunch. But analysts were mostly skeptical about the market's renewed optimism, noting a recovery in risk appetite may not be sustainable and should mean demand for US dollars would remain intact.
"October's global easing has been enormous, and more easing is likely to come in the next few months. But the global economy will deteriorate much further next year," UBS wrote in a research note. Elsewhere, sterling rose 0.3 percent against the dollar to $1.6470. The Australian and New Zealand dollars also rose 2.4 percent and 1.2 percent against the US dollar respectively.