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Dollar rally fades as Dubai deal eases jitters

NEW YORK, Dec 15 – The dollar traded lower Monday as worries eased over Dubai\’s debt problems, encouraging investors to take on more risk and move away from the safe-haven US unit.

The euro edged up to 1.4655 dollars at 2200 GMT from 1.4613 late in New York late on Friday.
Against the Japanese currency, the dollar retreated to 88.56 yen from 89.08 yen on Friday.

Dubai on Monday announced it would pay 4.1 billion dollars to cover Islamic bonds issued by its Nakheel property developer which matured Monday after getting a loan from its oil-rich neighbor Abu Dhabi.

The news eased some of the skittishness on financial markets worldwide that had helped support a rush into the safer dollar.

"It minimizes market nervousness and a push towards safe haven assets (and) it raises questions regarding where the dollar would be trading today in the absence of the move by Abu Dhabi," said Sacha Tihanyi at Scotia Capital.

Tihanyi and others said the greenback is now gaining momentum on positive US economy data in contrast to recent months when market turmoil and weak data prompted dollar gains.

"In the short term, we believe that good data should continue to help and not hurt the dollar," said Kathy Lien at Global Forex Trading.

But Lien said the market was awaiting the outcome of a two-day Federal Reserve meeting on Wednesday for signs on the course of US interest rates.

Although the Fed has signaled it intends to maintain near-zero rates for "an extended period," any change in the Federal Open Market Committee statement could be interpreted as suggesting a quicker move to lift rates.

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"We do not see further gains in the dollar until the FOMC rate decision on Wednesday," she said.

"Dollar bulls are still relatively insecure and therefore need confirmation that the Fed has been swayed by the recent improvements in US economy."

The greenback had jumped on Friday as stronger-than-expected reports on US retail sales and consumer confidence boosted the odds that the Federal Reserve would begin the process of lifting interest rates, dealers said.

Dealers said the market was little moved by the results of the Bank of Japan\’s closely-watched business sentiment survey, which showed firms plan to slash investment, despite a further improvement in business confidence.

"Planned capital spending was weak, offsetting the better-than-expected sentiment among manufacturers," said Societe Generale foreign exchange head Yuji Saito.

In late New York trade, the dollar stood at 1.0314 Swiss francs from 1.0340 Friday.
The pound was at 1.6305 dollars after trading at 1.6262.
 

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