* Euro, sterling under pressure on economy, bank worries
* Dealers trim short dollar/yen positions before Fed meeting
* Lunar New Year holidays reduce trade in Asia
By Rika Otsuka
TOKYO, Jan 26 (Reuters) - The dollar climbed on Monday,
moving back near a 23-year high against sterling and a six-week
high versus the euro as fears about the global recession and
banking sector problems pushed investors away from risk.
Investors were also anticipating moves by the White House to
revive banks and draw up a plan to help the world's biggest
economy out of a year-long recession.
Lawrence Summers, head of the National Economic Council and
President Barack Obama's top economic adviser, admitted on Sunday
that more money may be needed to stabilise the financial system.
[]
"What investors are concerned about most is the health of the
British and European banking sectors, and that is hitting
European currencies and lifting the dollar, while hopes for the
Obama administration are helping the U.S. economy," said
Yasutoshi Nagai, a senior economist at Daiwa Securities SMBC.
Sterling was down 1.6 percent versus the dollar at $1.3580
<GBP=D4>, having hit a 23-year trough of $1.3500 on Friday.
The euro was down 0.6 percent at $1.2915, after falling as
far as $1.2861 <EUR=>. The European single currency sank to a
six-week trough of $1.2764 on Friday after surveys showing the
euro zone manufacturing and services sectors contracted in
January, albeit at a slightly slower pace. []
The pound has tumbled recently on worries about a weak
economy as well as concerns over the stumbling British banking
sector and the parlous state of government finances.
Activity was subdued in Asia, however, as many financial
markets were closed for the Lunar New Year, while Australian
markets were shut for a national holiday. Thin volumes made price
moves choppy.
The euro edged down 0.2 percent versus the yen from late
Friday U.S. trade to 114.77 yen <EURJPY=R>. The European single
currency hit a seven-year trough of 112.08 yen last week.
Sterling slipped 1.4 percent to 120.59 yen <GBPJPY=R>. It
struck a record low of 118.80 yen late last week.
The pound fell on Friday after data showed the British
economy entered a recession at the end of last year for the first
time since 1991, contracting at its fastest pace in nearly 30
years. []
Sentiment was further dented for sterling after Bank of
England Monetary Policy Committee member David Blanchflower was
quoted on Sunday as saying British interest rates still had a way
to go if they were to follow the United States. []
British rates are currently at a record low 1.5 percent as
the central bank tries to stimulate the economy and prevent a
deeper recession.
"The market moves reflect the fact that players are fretting
that more negative incentives (for the pound) will come out. The
market is bearish on the pound and the euro," said Saburo
Matsumoto, a senior manager at Sumitomo Trust & Banking.
The dollar rose 0.1 percent to 88.87 yen <JPY=> as dealers
trimmed short dollar positions against the yen ahead of the
Federal Reserve's two-day policy meeting.
"Although players are not expecting anything surprising from
the Fed meeting, they need to cut short dollar/yen positions as
such positions have piled up a bit," said a forex trader at a
Japanese bank.
Last week the U.S. currency fell as low as 87.10 yen, the
lowest since July 1995.
With interest rates already near zero, the Fed will seek to
flesh out new unconventional ways to free up lending, but action
may need to await details on how the Obama administration will
tackle the financial crisis. []
Traders said the outcome of the Fed meeting will likely have
little impact on the currency market but the market will be
watching if the central bank announces any additional steps to
help the credit market and gives hints on purchases of U.S.
government bonds.
(Additional reporting by Kaori Kaneko; Editing by Michael
Watson)
