Dollar Rises Against Euro as Stock Drop Triggers Stop Losses

By Ye Xie and Oliver Biggadike

Aug. 28 (Bloomberg) -- The dollar gained against the euro on increased demand for safety as a drop in stocks encouraged investors to sell the 16-nation currency to limit losses.
“Stops again!” said Alan Ruskin, head of international foreign-exchange strategy in North America at RBS Securities Inc. in Stamford, Conn. “This time short-term players playing short on the dollar are getting stopped out.”

The U.S. currency gained 0.4 percent to $1.4294 per euro at 2:40 p.m. in New York, from $1.4341 yesterday. The dollar advanced 0.1 percent to 93.64 yen, from 93.52. The euro decreased 0.3 percent to 133.75 yen, from 134.14.

The dollar’s advance versus the euro accelerated at 2:19 p.m. in New York as trading volume fell after investors in London began a three-day holiday weekend, according to Scott Ainsbury, who helps manage about $9 billion in assets in New York at FX Concepts Inc., a hedge fund. Today’s move was a reverse of the dollar’s drop against the euro at 2:05 p.m. yesterday, also triggered by stop losses.
“All we’re doing is unwinding yesterday’s move,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York.

Traders typically place so-called stop losses at key levels to protect themselves when a bet moves in the opposite direction.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net
Last Updated: August 28, 2009 15:02 EDT