Tue, Mar 4 2008, 17:14 GMT
http://www.afxnews.com
LONDON (Thomson Financial) - The dollar headed lower after US Federal Reserve chairman Ben Bernanke called for vigorous action by mortgage lenders to avoid foreclosures.
The comments sparked another broad flight to quality, boosting the low-yielding yen, with stock markets falling and gold prices on the rise again as fears of stagflation continue to spook the market.
Mic Mills, a trader at TradIndex.com said market players are becoming increasingly worried that the Federal Reserve's aggressive interest rate cuts will not be enough to put a lid on the sharp economic downturn and will at the same time send inflation soaring.
"The underlying concerns about inflationary pressures are prompting a flight to quality ... If the Fed cuts interest rates as much as the market expects then at some point the sharp rises in oil and gold will start to hit everyone and will have far-reaching effects," he said.
He noted that comments from US rate-setters have been persistently negative despite the degree of stimulus they have been injecting into the economy through interest rate cuts.
"Everyone is looking at the situation and wondering how bad all this is going to get," he said.
The main gainers were the safer, low-yielding currencies, with the dollar falling back below the 103 mark against the yen and coming close to yesterday's lows against the Swiss franc.
The euro was also firmer, shrugging off overnight falls after European officials expressed concern about the surge in the euro above the 1.50 usd mark.
Although at this level, the euro is widely seen as overvalued, there is still no reason to buy dollars.
"It is very difficult to make any case for the dollar to strengthen at the moment," said Robert Howard at Thomson IFR Markets.
Elsewhere, the Canadian dollar continued to fall after the central bank slashed interest rates by half a point to 3.50 pct and suggested more rate cuts could be on their way.
"As with the US dollar, the Canadian dollar is now moving into the 'low yield' currency block, and while Canada's medium term prospects look much better than those for the US, the Canadian dollar could come under intermittent bouts of intense pressure," said Marc Ostwald at Insinger de Beaufort.
London 1635 GMT London 1255 GMT
US dollar
yen 102.86 down from 103.10
sfr 1.0364 down from 1.0365
cad 0.9952 up from 0.9880
Euro
usd 1.5208 down from 1.5216
stg 0.7656 unchanged
yen 156.33 down from 156.91
sfr 1.5754 down from 1.5776
Sterling
usd 1.9853 down from 1.9872
yen 204.13 down from 204.88
sfr 2.0575 down from 2.0599
Australian dollar
usd 0.9221 down from 0.9330
stg 0.4643 down from 0.4694
yen 94.84 down from 96.20
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