FOREX-Dlr up on slightly better risk demand, Fed view
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LONDON, May 12 (Reuters) - The dollar rose a full percent against the yen on Monday and approached a two-month high versus a basket of currencies, boosted by a slight rise in risk demand and growing speculation that U.S. interest cuts may be ending.
Weak economic data suggesting that Australia and New Zealand may be heading for rate cuts initially pushed down the high yielding currencies of both countries, as lower borrowing costs would trim their rate advantage against other currencies.
Stock markets and sterling were cheered as results from European banking heavyweight HSBC (HSBA.L) came in stronger than expected [nL12579110].
Market liquidity was thin however, with many European markets closed for holidays, and analysts said that this had sharpened currency moves.
News that a major earthquake had shaken parts of China had limited initial impact on the currency market as investors awaited more news of damage. Click on [nSP239734]
The dollar has rallied in recent weeks on speculation that the Federal Reserve may be nearing the end of its rate-cutting cycle, having slashed them by a total of 3.25 percentage points since September to 2 percent.
Analysts said that while risk appetite had picked up with stock markets rising, many investors stayed cautious about the health of the global economy and financial systems.
"I think sentiment is slowly moving in terms of a slowdown in the U.S. spreading to the rest of the world. Maybe some participants are thinking that they have priced in a bit too much weakness in the U.S.," Citigroup currency strategist David Pais said.
"Our own sense is that the slowdown in the U.S. is going to be a lot worse because it's very much the epicentre of the financial market problems and the housing market problems," he added.
The euro was down 0.2 percent on the day at $1.5449 EUR= having earlier dipped below the $1.54 mark to hover within range of a two-month low of $1.5284 hit last week.
Against a basket of currencies, the dollar was up 0.1 percent to 73.219 .DXY, pushing towards 73.895 touched last week for the first time since early March. Sterling bucked the dollar's trend to rise 0.3 percent on the day to $1.9586.
The dollar rose more than 1 percent to near a session high of 103.95 yen JPY=, with much of the gain having been nade before news of China's earthquake.
Market participants offered limited initial reaction to an announcement by the People's Bank of China that it raised its reserve requirement ratio by 0.5 percentage point, to take effect on May 20. Click on [nBJB000090]
