WORLD FOREX: Dollar Slips Despite Higher Risk Aversion

LONDON (Dow Jones)--Risk aversion continues to edge higher but the dollar is mostly lower in Europe Tuesday.

The U.S. currency is lower against the yen, given the Japanese currency's greater safe haven status, and against the euro, as the latest German consumer confidence and euro-zone purchasing managers' surveys were being taken as evidence that the worst of the downturn has past.

Carsten Brzeski, senior euro-zone economist with ING Financial Markets in Brussels, said that, although there is no reason for overhasty enthusiasm, the purchasing managers indexes "add to recent evidence that the worst may be behind and the euro zone economy is stabilizing."

Nevertheless, overall market sentiment remains negative, with analysts pointing to the World Bank's disappointing 1.2% forecast for world growth in 2009. This is down sharply from 5.9% in 2008 and has sent most global stock markets lower.

The 2.4% fall in the Dow Jones Industrial Average was followed by a 2.8% loss in the Nikkei. Most European markets were opening as much as 0.7% down.

Most market commentators expect this negative sentiment to prevail until the U.S. Federal Reserve's latest Open Market Committee meeting ends Wednesday and the Fed has an opportunity to clarify its future policy.

Currency strategists at UniCredit say any economic data will now be overshadowed by anticipation of what the Fed has to say.

There was certainly limited reaction to the latest euro-zone figures.

German consumer confidence rose this month, with the index up at 2.9 from 2.6 in May.

The purchasing managers' surveys showed a more mixed picture with manufacturing still improving but service industries declining against expectations. Nonetheless the overall composite index for the region rose to 44.4 from 44.0 even though it didn't managed to meet the 45.5 forecast.

The market is now looking to see if the latest U.S. existing home sales contributes to optimism about a U.S. recovery or whether it simply contributes to the gloomy mood that has seeped back over global financial markets this week.

High yielders generally remain under pressure with currencies such as the Australian dollar, the Swedish krona and the Norwegian krone all finding themselves being sold off as risk appetite disappears.

See chart at

http://www.dowjoneswebservices.com/chart/view/2281

By 0930 GMT, the dollar had fallen to Y95.31 from Y95.99 late Monday in New York, according to EBS.

The euro rose to $1.3935 from $1.3865 but fell to Y132.84 from Y133.12.

The dollar was also down at CHF1.0786 from CHF1.0862 while the pound fell sharply to $1.6278 from $1.6349.

Eastern European currencies also suffered from the lack of risk appetite with the euro rising to HUF281.98 from HUF281.18 and to PLZ4.5569 from PLZ4.5366. The single currency was also up at CZK26.147 from CZK26.014.

-By Nicholas Hastings, Dow Jones Newswires; 44 20 7842 9493; nick.hastings@dowjones.com

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