Forex - US dollar weaker after more bad news about housing, lending markets

SYDNEY, Nov. 20, 2007 (Thomson Financial delivered by Newstex) -- The US dollar was weaker against major currencies in midmorning trade in Sydney on Wednesday, extending overnight losses as investors digest more bad news about the banking and housing markets in the US and interpret comments from the Federal Reserve as suggesting further interest rate cuts are on the way.

The greenback was friendless after mortgage lender Freddie Mac (NYSE:FRE) reported a record quarterly loss of 2 billion US dollars due to rising defaults and an analyst downgraded Countrywide Financial Corp (NYSE:CFC) , fuelling credit market concerns.

The Federal Reserve also lowered its forecast for economic growth next year to 1.8-2.5 percent from 2.5-2.7 percent and nudged up its unemployment forecast to 4.8-4.9 percent from about 4.75 percent.

The greenback is also under pressure from increasing speculation the Arab states of the Persian Gulf will revalue their currencies against the US dollar and replace the peg with a basket of currencies.
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'The FOMC (Federal Open Market Committee) statement is probably the biggest driver,' said Cherelle Murphy, a senior market economist at ANZ Banking Group.

Suggestions that Arab states will unpeg their currencies from the US dollar has also 'certainly had an impact as well in the last 48 hours', Murphy said.

At 10.30 am (2330 GMT), one US dollar was buying 109.93 yen compared with 109.99 in late New York trade.

The euro was up at 1.4829 US dollars from 1.4822 US dollars overnight and the sterling was buying 2.0663 US dollars compared with 2.0661 US dollars in New York.

Elsewhere, the Australian dollar was at 89.25 US cents from 89.09 US cents overnight.

While the Aussie will continue to be buffeted by poor investor risk-appetite linked to credit market concerns and worries about the US economy, a significant decline is unlikely, said John Kyriakopoulos, head of currency strategy at National Australia Bank. (OOTC:NABZY)

'So long as the Reserve Bank of Australia is still expected to raise interest rates over the next year and Chinese economic growth remains brisk, we don't see a significant pullback in the Australian dollar,' Kyriakopoulos said.

Volatility is expected to remain a key theme in currency markets for the rest of the week, with US consumer confidence data out later today and US markets closed for the Thanksgiving holiday on Thursday.