15 December 2005, 10:57  The dollar struggled on Thursday after plunging

The dollar struggled on Thursday after plunging a day earlier on a record U.S. trade deficit and as the market braced for more short-covering that had boosted the yen to its steepest one-day rise in nearly four years. Traders said selling of the dollar against the yen had prompted unwinding of carry trades that had helped to hammer the Japanese currency to multi-year lows against high yielders such as the Australian and New Zealand dollars this year. The yen's rebound against other currencies, in turn, put a lid on the dollar. "The dollar is firmly capped, with lots of sell orders that more than offset dip buying by Japanese importers," said Tatsuro Karitani, a senior forex trader at Mizuho Corporate Bank. "The market still has scope for more dollar selling and is prone to react more sharply to weaker data than stronger data." The U.S. currency fell more than 2 percent against the yen on Wednesday, while the euro suffered its worst one-day fall versus the yen since July, losing 1.6 percent. The Canadian dollar and British pound had their largest one-day falls against the resurgent yen in seven years. With near-zero interest rates in Japan, investors had been borrowing the yen for almost no cost and selling it to buy higher-yielding currencies in carry trades. The dollar's rot started to set in after the Federal Reserve tweaked the wording of its policy statement on Tuesday, suggesting to many in the market that the central bank's 18-month campaign of credit tightening was nearing an end. Widening U.S. interest rates have been key to the dollar's rally this year, helping to suppress concerns about the huge trade deficit that hurt the currency for three years to the end of 2004.

© 1999-2024 Forex EuroClub
All rights reserved