WORLD FOREX: Dollar Trumped By Yen As Risk Flees Markets

By Bradley Davis 
   Of DOW JONES NEWSWIRES 
 

NEW YORK (Dow Jones)--The dollar dropped sharply against the yen Thursday as concerns over proposed U.S. banking regulations, worry over Greek sovereign debt and a possible slowing of Chinese growth led investors toward the safe-haven Japanese currency.
The dollar ended the day trapped near day-earlier levels against the euro after a day of extremely choppy trading. The greenback overnight sailed to its highest level against the euro since July before sinking against the common currency after the announcement of the bank regulations proposed by the Obama administration.
"Right now, a lot of people are probably viewing [the bank regulation plan] as potentially negative for the U.S.," denting the dollar, said Brian Kim, currency strategist at UBS in Stamford, Conn.
"But all the other things out there have not gone away," Kim said, referring to continued concerns over Greece's sovereign debt and worry that China could move to slow economic growth, which could affect the global economic turnaround.
Late Thursday in New York, the euro was at $1.4097 from $1.4102 late Wednesday, according to EBS via CQG. The dollar was at Y90.33 from Y91.23, while the euro was at Y127.27 from Y128.69. The U.K. pound was at $1.6195 from $1.6285. The dollar was at CHF1.0426 from CHF1.0443.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 78.395 from 78.369. It earlier hit 78.814, its highest level since Sept. 2.
As a result, Deutsche Bank's PowerShares US Dollar Index Bearish (UDN) exchange-traded fund was down 0.04% from late Wednesday, while its PowerShares US Dollar Index Bullish (UUP) was up 0.04%. The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of ICE's Dollar Index.
Pressuring the dollar against the euro could be investor worry over the proposed banking regulations, which could derail a nascent economic recovery, said Michael Mahoney, vice president of foreign-exchange trading at Union Bank in Los Angeles.
To see the euro's moves against the dollar, please see:
http://dowjoneswebservices.com/chart/view/3317
The bank regulation plan would force institutions to choose between commercial banking and proprietary trading for their own profit, while seeking to limit the size of megabanks.
Though the proposal appears to move the U.S. back toward Depression-era barriers between commercial and investment banking, White House officials denied they are pushing for a return of the Glass-Steagall Act, which was repealed in 1999.
The Dow Jones Industrial Average sank as reverberations of the proposed regulation hit the markets, losing more than 2% by late afternoon.
Despite the euro's afternoon rebound against the dollar, the common currency remained sharply lower against the yen, losing more than 1%.
"The overall net move on the day, you see things consistent with risk aversion," with the Greece situation and possibly sagging Chinese growth weighing on growth-sensitive currencies, said Daniel Katzive, foreign- exchange strategist at Credit Suisse in New York.
Growth-sensitive, commodity-backed currencies, such as the Australian and New Zealand dollars, declined over fears that China's putting a brake on economic growth could derail the global economic turnaround.
The dollar's had rallied overnight when China reported its gross domestic product had expanded at 10.7% in the fourth quarter, up from 9.1% in the third quarter. Beijing also disclosed that inflation had risen as high as 1.9%, instead of increasing to only 1.7% as expected.
The Chinese data signal that "tighter policy is just around the corner as Beijing seeks to prevent the economy from overheating," RBC Capital strategists wrote in a note to clients.
A slew of negavive news out of the euro zone, including festering concerns over Greek sovereign debt, sent the common currency during overnight trading to $1.4029, its lowest level since July 30.
A spokeswoman for the European Commission, the European Union's executive arm, said Thursday she isn't aware of any financial bailout packages being arranged for Greece, which struggles with deficit spending and concern over its credit-worthiness.