28 December 2007, 17:00  Dollar weakens further as risk aversion increases

The dollar continued to decline across the board following yesterday's weak US data, and pressured by risk aversion following the assassination of Pakistani opposition leader Benazir Bhutto. The death of Bhutto yesterday led to a flight to safety, boosting demand for the yen as demand for the carry trade waned, while the Swiss franc also benefited due to its perceived safe haven status. "There is safe haven demand for the Swiss franc in the wake of Bhutto's assassination," said Steve Barrow, currency strategist at Bear Stearns. The yen has also been supported by data out of Japan. "Risk aversion has been key to the (dollar's) slide from yesterday's highs... with today's slightly better than expected Japanese CPI data, perhaps adding a little additional weight," said Richard Pace at Thomson IFR Markets. Japan's core consumer price index, which excludes volatile prices of fresh food but includes energy prices, rose 0.4 pct in November from a year earlier, and follows a 0.1 percent rise in October when the core CPI marked its first increase in 10 months. There is unlikely to be any significant movements in the dollar today, until US new home sales data is released this afternoon. However, Barrow said that with trading conditions remaining thin in the post-Christmas period, "lack of volume may restrict some of the impact" from the data.

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