Dollar Extends Losses vs Yen on Low Consumer Confidence

The dollar accelerated losses against the yen and gains against the euro Tuesday,
after markets, already keyed up for testimony from the Federal Reserve chief later
this week, saw sinking U.S. consumer confidence as a red light for risk.

Consumer confidence fell in February to the lowest in 10 months, as consumers'
short-term outlook for the jobs market worsened, according to a private report
released on Tuesday.

"I'm not surprised to see the forex markets reacting to (consumer confidence) by
shifting positions into safer assets," said Matthew Strauss, senior currency strategist
at RBC Capital Markets in Toronto. "The headline may be overstating the softness in
consumer behavior but it highlights risks to the economic recovery going forward.

"The shift from government-induced growth to consumer-led growth will not be without
disappointment. We can't see fed funds going up before the fourth-quarter of this year.
In the short-term, safer assets, such as the yen, will get a bit of a boost," he added.

The dollar touched a session low of 90.28 and last traded at about 90 yen
[JPY=X 90.04 -1.09 (-1.2%) ], from around 90.75 before the data. Risk aversion
boosted the dollar slightly against the euro, which last traded down at near $1.35
[EUR=X 1.3535 -0.0058 (-0.43%) ], from $1.3560 before the data.

Investors had already shown themselves wary earlier in the session as data showed that
U.S. home prices dipped unexpectedly in December.

The Standard & Poor's/Case-Shiller index of home prices in 20 metropolitan areas showed
a 0.2 drop in December from November, with a 3.1 percent annual drop. Analysts surveyed
by Reuters had expected month-over-month prices to be flat.

Caution ahead of Bernanke's testimony cut demand for risk in Tuesday trade, as well,
helping the U.S. dollar recover from early losses and keeping the euro close to a
nine-month low.

The market will be looking for any Bernanke comments on the Fed's decision late last
week to raise its discount rate — the rate charged to banks for emergency loans, which
was lowered after the collapse of Lehman Brothers.

Early demand for euros fizzled Tuesday after data showed Germany's Ifo business sentiment i
ndex unexpectedly fell this month, and Italian confidence data and consumer spending
numbers from France were also below forecast.

The single currency was knocked further after Klaus Abberger, economist for the Ifo think
tank, said the German economy — the euro zone's biggest — may have contracted in the
first quarter.

Analysts said the market remained wary of Greece's fiscal problems, which would keep
the euro vulnerable to selling even if it did benefit from short-term bouts of
profit-taking.

Elsewhere, sterling [GBP=X 1.5463 -0.0018 (-0.12%) ] lost nearly two cents from
its high of the day of $1.5574 to hit a session low of $1.5395 after Bank of England
policymakers said further asset purchases under its quantitative easing program were
possible.