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FOREX-Dollar dips vs yen as carry trades trimmed
TOKYO, Aug 4 (Reuters) - The dollar dipped against the yen on Monday as falling global stocks and a sharp shift in expectations for Australian interest rates prompted investors to unwind carry trades favouring higher-yielding currencies. But the dollar held near a five-week high against the euro struck last week after data showed U.S. companies cut fewer workers than expected in July, providing some hope that the battered economy is stabilising. The U.S. currency has staged a broad recovery as mounting signs of a broader global economic slowdown has prompted investors to sell other major currencies where they had seen a possibility of higher rates. The Australian dollar has taken a big hit as investors have been caught offguard by a sharp shift in expectations towards interest rate cuts, tumbling nearly 3 percent against the yen last week for its biggest weekly drop since the Bear Stearns collapse in March. Falling global stock markets have made market players cautious about holding risky carry trade positions, although the once tight link between the performance of stocks and carry trades has weakened in the past few months. In early trade, Japan's Nikkei share average fell 1 percent. Wall Street shares retreated on Friday, partly after General Motors recorded a $15.5 billion quarterly loss and had its credit ratings downgraded further into junk territory. Analysts have said the dollar could benefit by default as downgrades to the growth outlook for the euro zone and major economies hurt other currencies, even as the greenback is dogged by the shaky U.S. economy and financial system. 'The increased possibility of rate cuts by central banks other than the Fed could propel a stronger dollar,' said currency strategists at UBS in a note to clients. This week's events will feature a slew of central bank meetings including the Federal Reserve, the Reserve Bank of Australia, the Bank of England and the European Central Bank. The dollar dipped to 107.56 yen , down 0.1 percent from late U.S. trade last week. The euro was little changed at $1.5574 , just above a five-week low of $1.5514 struck on trading platform EBS on Friday. The dollar may have a tougher time climbing against the euro as speculators on the International Monetary Market have already shifted to a short position in the single currency through last Tuesday, analysts said. [ID:nN01397876] The overall dollar position also shifted to a net long for the first time since June, showing investors are already favouring the U.S. currency slightly. Dollar gains were also limited as oil prices jumped above $126 a barrel on jitters as the United States said world powers have no choice but to increase sanctions on Iran after an informal deadline passed on an offer of talks on its nuclear programme. [O/R] Oil prices also rose as a tropical storm formed in the Gulf of Mexico near U.S. oil and gas facilities. Against the yen, the euro slipped 0.1 percent to 167.50 yen . The Australian dollar was up slightly at $0.9301 , holding near a three-month low of $0.9285 struck on Friday. The Aussie was flat at 100.05 yen after dipping to a two-month low of 99.78 yen. Money market futures are pricing in a 30 percent chance the RBA could cut rates by a quarter-point at Tuesday's meeting, even as most analysts say it is unlikely the central bank will switch gears on policy so quickly. A Reuters poll of 21 analysts found none forecasting a rate cut from 7.25 percent this week. [ID:nSYD254758] (Editing by Michael Watson) . lw/ng COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.