DOLLAR STYMIED BY REBOUND IN RISK APPETITES

The pendulum of risk avoidance and risk alleviation temporarily swung back against the dollar Tuesday, setting off some profit-taking on recent safe haven-inspired dollar gains. The dollar spent much of the day on the defensive as stock markets in the U.S. and overseas rallied, but by late Tuesday had managed to claw back most of the ground lost earlier on both the euro and the yen.

Late Tuesday, the euro was at $1.2657 from $1.2602 late Monday and Y124.94 against the yen from Y124.55, according to EBS. The dollar was at Y98.74 from Y98.82 and at CHF1.1629 from CHF1.1595 Monday. The U.K. pound fell to $1.3737 from $1.3792. The driving force against the dollar throughout much of the day Tuesday was the worldwide rebound in sentiment that lifted equity markets, dampening the safe-haven demand for dollars that held sway on Monday.

The catalyst for Tuesday's equities rally was unaccustomed good news from Citigroup, one institution that has recently come to exemplify the distress of the U.S. and global banking systems. A memo from Citigroup's chief executive said the bank is currently enjoying its best quarter since the third quarter of 2007, triggering Tuesday's rebound in risk appetites.

While that initially sent the dollar to a two-week low against the euro and
also back from recent gains against other currencies, the dollar by late in the
day had bounced considerably from its intraday lows even as U.S. stocks held
onto their gains.

Currency watchers said the reversal is testament to the fragility of risk
appetite in the currency market, where the dollar is widely considered the only
reliable safe-haven currency at the moment.

Accordingly, episodes of intraday weakness such as Tuesday's are being taken
by many currency players as opportunities to buy dollars on dips at more
attractive levels. "Few people are convinced that the dollar is in any sustainable kind of downturn, and I don't think anybody really buys that today's bounce in equity
markets is durable," said senior currency strategist David Watt of RBC Capital
Markets in Toronto. "Underlying views haven't changed, and there's still a lot
of reasons for people to be wary."

Elsewhere Tuesday, Hungary's central bank indicated it has been actively
intervening in the foreign exchange market to support the Hungarian forint,
which has depreciated some 22% against the euro so far this year and last week
hit a record low. National Bank of Hungary Governor Andras Simor said in a televised interview that the central bank is ready to defend the forint by all its policy means, given that the currency has fallen to "sensitive levels."

A report Tuesday from currency strategists at Brown Brothers Harriman in New
York suggested that the currencies of Hungary, Romania, Ukraine and other East
European units are likely to remain under pressure, given the economic problems
still facing the region.