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Forex - Dollar firms as financial markets become increasingly nervous Thomson
Financial delivered by Newstex The dollar was firmer against the euro and sterling as global markets' heightened sense of risk aversion provided the beleaguered US currency with some support. Fears that the fallout from the US subprime crisis could hit the world economy harder than expected have led to renewed support for the dollar, along with some respite in the negative news emanating from the US housing market. Equity markets, which currency markets have been using as a gauge of risk appetite, fell yesterday on fears that financial companies have still not fully disclosed the extent of the writedowns on subprime linked assets. Added to this are fears that the recent surge of other currencies against the dollar, coupled with soaring oil prices, will eventually hit global corporate profitability. There are also fears of a repeat of this summer's liquidity crisis, with spreads in the money markets climbing sharply.
'The mood pervading the market does seem to be shifting ever so slightly to one of greater pessimism,' said Gavin Friend at Commerzbank. 'Amid this defensive mood, the dollar can defend its gains ahead of the weekend and consolidate since today's data may not be decisive enough for another round of aggressive dollar sales,' he added. US economic news due this afternoon include industrial production figures and Treasury International Capital figures. The last set of TICS figures showed a record net level of capital flowed out of the US during August - 69 bln usd - as investors withdrew money when financial market volatility hit fever pitch. Today's figures are expected to show a bounce back with forecasts for a September net inflow of 75 bln usd. Meanwhile the pick up in risk aversion meant the yen remained firm, despite the release of a fairly gloomy set of minutes to the Bank of Japan's October rate-setting meeting. The BoJ signalled it was becoming more concerned about the global economic outlook, placing a fresh question mark over when it can eventually raise interest rates.
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