FOREX-Dollar rallies broadly as Syria fears spur bid for safety
* Dollar recovers against yen amid Syria tensions * Yen falls as BoJ's Iwata says bank will continue QE * Emerging market currencies weighed by risk aversion By Julie Haviv NEW YORK, Aug 28 (Reuters) - The U.S. dollar rallied across the board on Wednesday as investors sought safety due to the possibility of Western military action in Syria, while some emerging market currencies hit record lows. Investors, having bought the yen and Swiss franc a day earlier on Syria-related concerns, locked in steep gains in those currencies on Wednesday. The dollar, yen and Swiss franc are widely perceived as safe havens in times of economic stress and geopolitical turmoil. The United Nations Security Council was set for a showdown over Syria on Wednesday as Britain sought authorization for Western military action, which Russia called premature and seemed certain to block. "The dollar's rally is clearly related to Syria," said David Starkey, senior market analyst, at Cambridge Mercantile Group in Toronto. "Investors realize that the dollar is still the safest currency to be in right now. Also, momentum is indicating that it's time for the dollar to pick up a little ground." In late afternoon trade, the dollar was last up 0.7 percent against the yen, at 97.74 yen, recovering from an intraday trough of 96.83 that matched a recent low set two weeks ago, according to Reuters data. The yen had earlier slipped after Bank of Japan Deputy Governor Kikuo Iwata said the bank will continue its quantitative easing until inflation stabilizes at 2 percent. On Tuesday, the dollar had tumbled about 1.5 percent against the yen, its biggest one-day drop against the Japanese currency since June 11. Reported options expiries at 97.00 yen and 97.70 yen could keep the pair close to those levels. Emerging market currencies, already weakened by an expected reduction in U.S. Federal Reserve stimulus measures, fell further, with the Turkish lira and Indian rupee touching record lows against the dollar. Global aversion to risk related to Syria also weighed on Mexico's peso, which is a highly liquid currency that can be easily sold by investors in times of distress. Ian Stannard, head of European FX strategy at Morgan Stanley in London, said a move above 98.15 yen would be a bullish signal for the dollar, while analysts said that any further dips in the pair would be limited and that the dollar may settle into a range of roughly 96 to 99 yen. The dollar was up 0.5 percent against the Swiss franc , at 0.9218 <CHF= franc. The greenback was also up 0.4 percent against a basket of currencies, at 81.514. Meanwhile, the euro traded higher against the yen, last up 0.3 percent at 130.34 yen. Against the dollar, the euro zone currency was down 0.4 percent at $1.3338. Analysts at Citi said the euro may struggle if the U.S. Federal Reserve trims its stimulus, which would tighten global monetary conditions, raise peripheral funding costs and hurt the euro zone's nascent recovery. With investors avoiding risk, growth-linked currencies struggled. The Australian dollar was down 0.5 percent at US$0.8938 and the New Zealand dollar was flat at US$0.7794. The market generally believes the Fed will reduce its bond purchases in September, but given the recent spate of weak economic data, some economists say that tapering could be delayed, especially in light of the U.S. budget debate next month in Washington. U.S. economic data on Wednesday showed pending home sales dropped 1.3 percent in July from June. Jacob Oubina, senior U.S. economist with RBC Capital Markets in New York, said the market is focused on just one piece of data: the labor market report for August due out next week. "If you get strong data, the Fed is going to lock in with tapering over the next couple of months," he said. "We think it's going be October because of the possible issues from the debt ceiling fight in Washington in September."
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