WORLD FOREX:Dollar Slips Back Again As Risk Appetite Returns

By Nicholas Hastings
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--Appetite for risk is returning a little, pushing the dollar lower and higher-yielders, such as the Australian dollar and even the pound, higher in Europe Wednesday.

Optimism about the global economy was also reflected in equities, with most European bourses opening higher.

The rallies mark the end of the downturn that swept through financial markets Tuesday after the Bank of Canada disappointed investors with its decision to leave interest rates unchanged.

The BOC had widely been expected to follow the Reserve Bank of Australia with a rate hike - a move that would have reinforced the view that G10 economies had recovered enough for the unwinding of emergency credit-crunch policies.

Instead, the Canadian central bank warned of the risks that the recent strength of the Canadian dollar posed to the economy and lowered its growth forecast for the next year or two.

After that, a spate of third-quarter earnings results from the U.S. failed to live up to expectations, giving investors more reason to sell equities and preventing the euro from having enough momentum to break resistance at $1.50.



The gloom spread into Asian trading with the Nikkei ending virtually flat and the Shanghai Composite falling 0.5%.

The price of crude oil, which had previously rallied up over $80 a barrel briefly, fell back again to trade as low as $78.46 before rebounding to $78.65.

The euro, meanwhile, lost its upward momentum and failed to make a sustained break over $1.50.

However, as European trading got underway some of the gloom appeared to be lifting with analysts suggesting that the euro - and even the pound - should be bought on dips.

Whether or not risk appetite recovers to former levels remains to be seen.

Sue Trinh, senior currency strategist with RBC Capital Markets, said this could depend on whether the S&P500 can break and hold over the 1100-1200 range. It is now just under 1100.

The currency strategist team at UniCredit Markets and Investment Banking said that firm gross domestic product data out of China later Wednesday could keep risk appetite high.

By 0930 GMT, the dollar was up at Y90.93 from Y90.71, according to EBS, while the euro was up at $1.4945 from $1.4929 and at Y135.85 from Y135.40. The dollar was also down at CHF1.0115 from CHF1.0127.

The pound rose to $1.6569 from $1.6361. At one stage it hit a one-month high of $1.6544 after the Bank of England published bullish minutes from its last meeting that suggested there is little pressure for quantitative easing to be extended next month as many had expected.

See chart at