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Dollar Down Vs Yen, But Supported Vs European Rivals


By Dan Molinski
Of DOW JONES NEWSWIRES




NEW YORK (Dow Jones)--The dollar is going in several directions at once early Friday in New York, trading lower against the yen on risk aversion, but higher against sterling and little changed against the euro.

Fresh data out Friday morning showed the U.S. trade deficit widened in November on surging oil prices, but currencies showed little reaction and remained where they positioned themselves overnight.

"The trade deficit should be overall dollar-negative but other factors are at work, including the dirt out of Wall Street," said Brian Dolan, chief currency strategist at Forex.com, referring to news that more financial firms may have more heavy losses to report due to the U.S. subprime debacle.

All of these worries are causing carry trade investors, who borrow low-yielding currencies to buy higher-yielding currencies such as sterling or euro, to unwind these positions. That is providing carry-over support for the dollar against its European rivals despite the weak trade data.

The U.S. deficit in international trade of goods and services surged by 9.3% to $63.12 billion from October's revised $57.77 billion, the Commerce Department said Friday. Economists were forecasting a deficit of $59.75 billion in November.

Also out Friday, U.S. import prices were unchanged on a monthly basis in December after rising 3.3% in November. Currencies shrugged off the data.

Early Friday, the euro was at $1.4786 from $1.4800 late Thursday. The dollar was at Y108.95 from Y109.47. The euro was at Y161.17 from Y162.01, according to EBS. The U.K. pound was at $1.9558 from $1.9625, and the dollar was quoted at CHF1.1021 from CHF1.1039 late Thursday.

The dollar had already been declining against the yen overnight as Asian and European stock markets were sold off amid reports that Merrill Lynch is set to disclose further write-downs related to subprime.

These reports also hurt the pound, adding to the woes already facing the U.K. currency. Investors have turned bearish on the pound amid sentiment that the Bank of England's decision not to cut rates Thursday was just a delay of the inevitable.

The pound hit a 10-month low against the dollar overnight of $1.9485, and analysts said more sterling weakness is likely in the coming weeks.

Meanwhile, Canada's dollar fell to a four-week low against the greenback after Canadian job creation fell unexpectedly last month, with factories losing the most jobs in almost a year.

The Canadian economy shed a net 18,700 jobs in December after adding a total 235,400 between May and November, the government said Friday. The unemployment rate remained at 5.9%, as expected.

Also out Friday was data on Canada's trade balance, which showed an upside surprise, with the surplus rising more than expected in November. But Canada's dollar remains under pressure, with the U.S. dollar recently hitting a fresh intra-day high of C$1.0221, its highest level since Dec. 17.