NEW YORK (Dow Jones)-- The dollar staged an afternoon surge Tuesday as investors heavily pulled back from risk and embraced the safe-harbor greenback.

"This is part of a broad dollar rally, with equities selling off, some nervousness in Treasurys going on, and an overall unsettled feeling ahead of G-20 meetings," said Andrew Busch, global foreign exchange strategist at BMO Capital Markets in Chicago.

In extremely volatile late-afternoon trading in New York, the euro, sterling and yen all hit fresh lows shortly after 3:30 p.m. EST. Commodity currencies, largely tied to global growth, also fell as investors shed risk. For example, the New Zealand dollar fell 1.5%. The Australian dollar also was down by 1%.

The dollar's rise accelerated around 3:25 p.m. EST, when 10-year Treasury note yields hit their daily high following a well-bid $24 billion auction of 10-year Treasury notes, said Sebastien Galy, currency strategist at BNP Paribas in New York.

In addition, the rally was fueled by fears that the dollar may have been driven down too far.

"People stayed in bearish dollar positions as long as they could," but some investors finally bailed on those bets because the risks were becoming too apparent, said Aroop Chatterjee, chief foreign exchange quantitative strategist at Barclays Capital in New York. He added those risks include recent Federal Reserve officials expressing skepticism over the value of a new Federal Reserve stimulus plan and better U.S. data undermining the need for it.

Late Tuesday afternoon, the euro was at $1.3772 from $1.3921 late Monday, according to EBS via CQG. The dollar was at Y81.83 from Y81.20, while the euro was at Y112.72 from Y112.99. The U.K. pound was at $1.5991 from $1.6135. The dollar was at CHF0.9677 from CHF0.9660.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 77.742 from 77.0035.

No major breakthroughs are expected at the two-day Group of 20 summit, which begins Thursday. But uncertainty over those meetings hung over unsettled investors, who pared their most aggressive bets, said analysts.

Meanwhile, U.S. stocks were down, with the Dow Jones Industrial Average off 60.09 points. The Treasury market was also roiled by fears that Wednesday's 30-year bond auction would go poorly, despite the day's successful 10-year auction. The 30-year is largely ignored in the Fed's $600 billion bond-buying program known as quantitative easing.

Investors originally bolted the euro Tuesday based on renewed sovereign-debt concerns and sterling based on fear of new U.K. quantitative easing.

"You look at the overall fundamental story and it's not great," regarding the euro zone, said Julia Coronado, economist at BNP Paribas in New York.

"The U.K.'s inflation report tomorrow [Wednesday] will be more dovish than what people are expecting," increasing fears of Bank of England-led QE there, said Mark McCormick, currency strategist with Brown Brothers Harriman in New York.

With the absence of significant U.S. economic data, investors also took trading cues from overseas, especially from troubled euro-zone economies.

The cost of insuring the bonds of Ireland, Spain and Portugal against default reached new all-time highs overnight.

Such default fears are unlikely to subside and could anchor the euro until the debt woes of the weaker euro-zone nations are resolved, said Raghav Subbarao, currency strategist with J.P. Morgan in London.

Beyond sovereign debt, the euro was hurt by fissures within one of the common currency's strongest nations.

Germany's Federal Statistics Office said Tuesday consumer prices edged up just 0.1% in October from September, part of a recent run of uninspiring domestic data.

-By Andrew J. Johnson, Dow Jones Newswires; 212-416-3092; andrewj.johnson@dowjones.com stocks, bonds & forex trading
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13:40 GMT. Shares are shrinking from two-year highs and commodities are mostly softer as concerns about Europe’s fiscal condition and further monetary tightening in China weigh on investor sentiment.

The FTSE All World equity index is down 0.5 per cent, but core bond yields are again trundling higher as the long-term impact of the Federal Reserve’s quantitative easing policy stokes inflation fears.

The dollar is a touch softer and S&P 500 equity futures are flat after US weekly jobless claims and the trade deficit for September both fell more than expected.

Without a bid for haven debt, many strategists see the selling of riskier assets as little more than a consolidation phase after the recent QE2, earnings and economic data-inspired run that had pushed the All World up 17 per cent from the start of September. The Reuters-Jefferies CRB commodities basket is up 21 per cent over the same period.

That said, traders are again becoming intermittently concerned about the stresses re-emerging in the eurozone and the “currency war” rhetoric that is bubbling ahead of this week’s G20 meeting in South Korea.

Regarding the former, the spread between Ireland’s benchmark debt and those of Germany hit a euro-era record of nearly 600 basis points as European clearing group LCH.Clearnet raised margin requirements for trading Dublin’s debt.

The move appears to have been interpreted as providing further evidence of the fragile condition of the eurozone “peripheral” sovereign bond complex – as if any reminder were needed

The Market Eye

Dallas Fed president Richard Fisher says the central bank is not looking to use QE2 to spark headline inflation. Corporate America may wish it was. One result of the Fed’s largesse is soaring commodity prices, partly because hot money is chasing real assets. But consumers are in no mood to stump up for higher prices in the shops, and thus some companies’ margins are being crushed. Shares of Dean Foods, the biggest dairy producer in the US, fell 18 per cent on Tuesday following disappointing results that pointed to such a margin squeeze. Equity investors may be wise to start paying more attention to factory gate and consumer price inflation differentials.

Asia Pacific

Asia-Pacific. Stocks reversed early gains on Wednesday morning, with markets in Hong Kong and China at one point falling more than 1 per cent on concerns of inflation and increased speculation of fresh measures to curb property prices on the mainland. The FTSE Asia-Pacific index is weaker by 0.4 per cent.

The Shanghai Composite closed down 0.6 per cent, amid concerns that higher consumer prices and increasing fund inflows could prompt the government to tighten monetary policy further. Bloomberg reported that Beijing has ordered some banks to increase their reserve ratios by 50 basis points. Inflation data for October will be published on Thursday.

In Hong Kong, the Hang Seng was lower by 0.9 per cent as banks and developers slipped. Australia’s S&P/ASX 200 fell 0.9 per cent as traders tracked New York’s losses.

Tokyo and Seoul bucked the regional trend. Japan’s Nikkei 225 rose 1.4 per cent, with banks leading the advance on reports that global regulators are likely to focus their attention on large banks with international businesses, stripping out domestically focused institutions that lack global reach. A weaker yen on Tuesday has also helped exporters.

The Kospi in South Korea advanced by 1.1 per cent to a fresh three-year high as foreign investors were net buyers on hopes the country was well positioned to exploit the global economic recovery.

Europe

Europe. Major exchanges were lower from the off as investors absorbed a big batch of earnings reports and Wall Street’s slide overnight. The FTSE Eurofirst 300 is off 0.1 per cent and London’s FTSE 100 is down 0.4 per cent as resource groups have a bad day. Banks are softer, tracking a heavy fall for US financials and after French investment bank Natixis fell more than 10 per cent on capital requirement concerns. Dublin is down 1.4 per cent.

Forex

Forex. The dollar is struggling to consolidate Tuesday’s advance as traders probably have one eye on the forex-policy rhetoric in the run-up to this week’s G20 meeting.

The US dollar index, which tracks the buck against a basket of its peers, is down 0.1 per cent at 77.74. The euro is flat at $1.3770 and the yen is down 0.9 per cent relative to the greenback at Y82.48.

The Chinese renminbi rose 0.1 per cent versus the dollar to Rmb6.6335, a fresh 17-year record.

Rates

Rates. Core sovereigns are again under pressure after the previous session’s sell-off caught investors off guard. The US 10-year benchmark yield is up 6 basis points to 2.72 per cent, an eight-week high that suggests the Federal Reserve’s second bout of quantitative easing had been well and truly discounted by the market.

The US will auction $24bn of 30-year notes later today. The yield on the “long bond” hit a five-month high on Tuesday as investors were seen fretting about the long-term inflationary effects of the Fed’s ultra-loose monetary policy. Thirty-year yields are today outperforming the broader trend and flattening the curve with a rise of just 1 basis point to 4.26 per cent.

Eurozone peripheral yields are moving higher and credit default swaps are widening as fears over Ireland’s position again bubble to the surface. Portuguese 10-year yields are up 20 basis points to 7.10 per cent after an auction of €1.2bn worth of 6- and 10-year bonds required higher yields.

UK 10-year gilt yields have jumped 12 basis points to 3.16 per cent after the Bank of England’s quarterly inflation report was considered more hawkish than expected.

Commodities. The complex is witnessing some selling as Tuesday’s reversal in precious metals reminds traders that some product prices may have become stretched following the rush to invest in hard assets after the announcement of QE2.

Many raw materials remain close to multi-year or record highs, however. The Reuters-Jefferies CRB index is off 0.2 per cent. Grain prices are a bit softer following Tuesday’s bounce. Oil is up 0.5 per cent at $87.08 a barrel.

Gold is higher following its late drop below $1,400 in the previous session when it retreated from a record of $1,424.1 an ounce. The yellow metal is up 0.7 per cent to $1,402, while silver is up 3.1 per cent to $27.67 an ounce following its sharp slide late Tuesday.

Follow the market comments of Jamie Chisholm in London and Telis Demos in New York on Twitter: @JamieAChisholm and @telisdemos
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The euro fell against the dollar Wednesday in Asia as renewed concerns over European debt issues gave investors an excuse to take profits by squaring the currency holdings they had built.

The euro has been falling against the dollar in the past few days, as the market focus has returned to European sovereign debt problems, highlighted by the widening of Irish and Portuguese credit-default swaps.

The euro was at USD1.3761 as of 0450 GMT, from USD1.3772 overnight in New York.

The dollar was a tad weaker against the yen at JPY81.78 from JPY81.83 due to selling by Japanese exporters. But that is clearly higher compared with last week's levels of below the JPY81.00-mark.

The greenback's ascent versus the yen isn't healthy either, dealers noted, saying the rise is based on technical factors.

The U.S. currency's rise above JPY81.00 was largely due to the execution of automated stop-loss buying orders, and dealers don't rule out the risk of the dollar going as high as JPY82.50 if similar automated orders above JPY82.00 are triggered.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 77.768 from 77.742 in New York. The euro was at JPY112.56 from JPY112.72.

Sterling held on to gains against the dollar and reached its highest level in six weeks as British industrial output grew in line with expectations, while manufacturing came in weaker than expected. September's industrial output came in at 0.4 percent, while manufacturing came in at 0.1 percent vs. 0.4 percent.

The Australian dollar slid against the U.S. dollar in Asia on Wednesday as traders were tepid ahead of a slew of crucial Chinese data on Thursday.

Market expectation

Foreign exchange majors are trading in relatively tight ranges after the dollar's surge against the yen and the euro on Tuesday.

For the rest of the global day, investors will pay attention to an auction of U.S. 30-year Treasury bonds.

USD may resume falling if U.S. 30-year Treasury auction later in day turns out weak due to increased expectations of inflation in U.S. on likely rise in USD flows to economy from QE2 measures, say analysts. Higher inflationary expectations (could) mean lower U.S. real interest rates, and that should weigh on the dollar.

European stocks are expected to open lower Wednesday after U.S. stocks lost some of their recent gains Tuesday and as traders considered the implications of the forthcoming G-20 meeting in Seoul.stocks, bonds & forex trading
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More investors are jumping into the risky currency markets in a search for higher-yielding alternatives to stocks and bonds—and financial-services firms are making it easier than ever for them to do so.

New rules set by the U.S. Commodity Futures Trading Commission, or CFTC, designed to protect investors go into effect on Monday. Still, there are huge risks involved.

In a foreign-exchange trade, investors trade in pairs, buying one currency and selling another. Investors can borrow large amounts against a relatively small actual investment, potentially magnifying their gains—and losses.

The new CFTC rules will prohibit retail forex dealers from offering more than 50-to-1 leverage for major currencies such as the dollar and the Japanese yen or 20-to-1 leverage for more-exotic currencies. That means an investor putting up $1,000 can trade as much as $50,000. Previously, leverage of 100-to-1 was common.

Investor interest in currency trading is heating up. Brokerage firms such as TD Ameritrade Holding Corp., Interactive Brokers Group Inc. and E*Trade Financial Corp. report seeing strong gains in volume and have ramped up marketing and educational efforts. In August, TD Ameritrade rolled out futures and forex trading systems—previously available only to active traders—to all of its customers. While equity volumes at the brokerage were down in July, trading volumes in futures and forex were up 60% and 34%, respectively, says Steven Quirk, senior vice president of TD Ameritrade's Trader Group.

The CME Group Inc.'s Chicago Mercantile Exchange, which rolled out smaller retail-oriented forex futures contracts last year, saw trading volumes in that product jump 125% in September over year-ago levels, says Derek Sammann, head of FX and interest-rate products at CME.

Many of the popular foreign-exchange trading sites—including FXCM Holding LLC's FXCM.com, Gain Capital Holdings Inc.'s Forex.com, and Oanda Corp.—offer features designed to attract retail investors. At Oanda, which publishes clients' aggregate long and short positions for major currency pairs to give investors an indication of market sentiment, traders can buy and sell currencies for as little as $1. Earlier this year, Forex.com launched a new pricing structure that essentially reduced spreads on trades by as much as 50%.

Wall Street firms have jumped in with their own proprietary forex-trading services in recent years. Deutsche Bank AG's London-based dbFX and Citigroup Inc.'s CitiFX Pro are aimed at active traders and small institutions. As a unit of Citigroup, the Citi platform is eligible for FDIC insurance, which covers cash deposits up to $250,000.

Forex trading can help diversify one's portfolio, since currencies often move independently of stocks, bonds and other traditional investments.

But be warned: Currencies can bounce around sharply on an array of factors ranging from minor changes in interest-rate expectations to swings in economic data. And depending on how much leverage is used, investors could be responsible for losses that far exceed the amounts they invested. Investors also face greater risks in the over-the-counter retail-currency market, which is less regulated than the stock and futures exchanges.

Nasser Bakizada, a full-time trader in Washington who is buying the euro and other foreign currencies and shorting the dollar, manages his risks by making sure he has enough collateral to cover potential losses. Foreign-currency trading "provides a great opportunity but it has to be done very carefully," the 53-year-old Mr. Bakizada says. "The biggest risk is, during volatile times, you can get burned very quickly."

Mutual funds and exchange-traded funds can be an easier and safer way for small investors to get currency exposure. "Some people think of them as a fixed-income substitute that can provide diversification beyond bonds," says Nadia Papagiannis, alternative-investments strategist at investment-research firm Morningstar Inc., which tracks 16 open-end distinct mutual funds and 32 ETFs and exchange-traded notes.

The Oppenheimer Currency Opportunities Fund, launched in June, aims to protect investors' purchasing power mainly by buying the foreign currencies of the U.S.'s major trading partners. John Hancock Funds, which launched the John Hancock Currency Strategies Fund earlier this month, also is adding the fund as an underlying investment in its target-date and target-risk funds. Last month, WisdomTree Investments Inc. launched the WisdomTree Dreyfus Commodity Currency Fund—an actively-managed ETF designed to provide exposure to a basket of currencies of commodity-producing countries.

Investors also can buy foreign-currency certificates of deposit. In July, EverBank Financial Corp. rolled out a CD whose returns are tied to the Deutsche Bank Currency Returns Index, which tracks popular trading strategies. Investors tie up their money for four years, but get principal protection and can earn 100% of the index's returns.

Given the plethora of retail foreign-exchange trading sites, it is important to verify whether a firm or broker is registered with the CFTC and is a member of the National Futures Association. Investors can check on the disciplinary history of an individual firm or broker at www.nfa.futures.org/basicnet.
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