The Wall Street Journal-20080128-Forex View- Risk Aversion May Boost U-S- Currency

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Forex View: Risk Aversion May Boost U.S. Currency

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The dollar could go lower against the yen this week, as the release of key U.S. economic reports and likely Federal Reserve interest-rate cuts may spark renewed fears of a recession.

Concerns that the U.S. economy could contract ebbed considerably last week, as U.S. stock markets rebounded strongly from an early-week tumble. Agreement in Washington on an economic-stimulus plan and positive readings from second-tier U.S. data gave investors further reason to push the dollar up against Japan's currency.

But the dollar's gains and investor optimism could be reversed in the coming week as markets brace for release of two key reports at the end of next week -- non-farm payrolls and the Institute for Supply Management manufacturing survey.

A return of risk aversion and fears of a recession wouldn't be all bad for the U.S. currency. Recent trends show that when risk aversion goes up, the dollar tends to rise against the euro, as U.S. investors sell their overseas assets.

Mitul Kotecha, chief currency strategist with Calyon Credit Agricole in London, is one that expects investors' improved appetite for risk to continue, which he says could hurt the dollar against the euro.

Against this backdrop, look for the euro to trade this week between $1.4550 and $1.4800, analysts say, while the dollar is likely to move between 105.00 yen and 108.50 yen.

The euro was at $1.4672 late Friday in New York, down from $1.4772 the day earlier, while the dollar was at 106.83 yen, compared with 106.88 yen. The U.K. pound was at $1.9817, up from $1.9773, while the dollar Friday was at 1.0973 Swiss francs in New York, up from 1.0862 a day earlier.

Currency markets will focus much of their attention on the two-day meeting of the Fed's rate setting Federal Open Market Committee that wraps up Wednesday.