Dollar buoyed by stimulus hopes

January 7, 2009

, TOKYO, Jan 7 – The dollar gained slightly in Asian trade on Wednesday, lifted by optimism about US president-elect Barack Obama\’s economic stimulus plans, dealers said.

The dollar firmed to 93.94 yen in Tokyo afternoon trade, up from 93.65 yen in New York late on Tuesday. The euro dropped to 1.3493 dollars from 1.3531 and to 126.72 yen against 126.76.

"With share prices holding firm, we are seeing some buying" of the dollar, said Masato Ohtsubo, a dealer at Resona Bank.

Asian shares rose on Wednesday, buoyed by gains on Wall Street and hopes for more US government spending to tackle the recession, even though some players were cautious about the likely impact.

"Players are too optimistic about Obama\’s economic stimulus packages," Masanobu Ishikawa, general manager of Tokyo Forex and Ueda Harlow, told Dow Jones Newswires.

Traders were also looking ahead to key US jobs data due on Friday, as well as an interest rate decision by the Bank of England on Thursday.

Analysts generally are forecasting the BoE will reduce its key lending rate for a third month running – possibly by as much as 100 basis points – from the current level of 2.0 percent.

The euro remained on the back foot after eurozone inflation fell to a two-year low of 1.6 percent in December, reinforcing expectations that the European Central Bank will slash interest rates next week.

Standard Chartered analysts predicted a 50-basis-point cut by the ECB on January 15, a move that would reduce official borrowing costs in the eurozone to 2.0 percent.

Lower interest rates dampen currencies because they make them a less attractive investment in terms of yields.

The dollar fell to 1,295.30 Korean won from 1,312.50 a day earlier, to 10,875 Indonesian rupiah from 11,065, and to 34.93 Thai baht from 35.05.

It slipped to 32.94 Taiwan dollars from 33.03 and to 46.51 Philippine pesos from 46.94, but rose to 1.4745 Singapore dollars from 1.4742.

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