Europe's currency is on course for its second straight weekly decline
versus the dollar on speculation the credit crisis in Europe will
deepen, prompting the European Central Bank to cut interest rates
further. The bank lowered its main refinancing rate two days ago for
the first time in five years. The pound fell as much as 1.8 percent to
$1.6792, breaching $1.70 for the first time since November 2003.
The yen headed for its biggest weekly gain in a decade against the dollar as the global stock- market rout prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan.
The yen gained 20 percent this week to 65.27 versus the Australian
dollar, 15.1 percent to 59.17 against New Zealand's currency, known as
the kiwi, and 7 percent against the euro on speculation investors will
reverse trades in which they get funds in countries with low borrowing
costs and buy assets where returns are higher. Japan's 0.5 percent
target lending rate compares with 6 percent in Australia, 7.5 percent
in New Zealand and 3.75 percent in Europe.
Japan's
currency was poised to rise the most versus the 15- nation euro in any
week since its debut in 1999 as the worst week ever for the Standard
&Poor's 500 Index discouraged carry trades. President George W.
Bush said the U.S. is working with global partners to solve the
financial crisis as Group of Seven finance ministers and central
bankers met in Washington.
``Investors are concerned it could get worse,'' said JensNordvig,
a currency strategist at Goldman Sachs Group Inc. in New York.
``Clearly a lot of investors have only one goal, to preserve capital.''
The U.S. currency has dropped 5.2 percent against the yen this
week, the most since Oct. 9, 1998, when it plunged 14 percent as
investors shed risk and abandoned yen carry trades in the wake of the
collapse of hedge fund Long-Term Capital Management LP.
Coordinated
interest-rate reductions by central banks in the U.S., Europe and Asia
in the past two days failed to revive lending among banks, putting
stocks on course for their worst week in 30 years. The cost of
borrowing in dollars in London for three months rose to 4.82 percent
today, the highest since December, the British Bankers' Association
said.
Threatened by the worst economic outlook in a quarter-
century, G-7 officials arrived in Washington without a broad- based
strategy that investors were seeking. Among options is a proposal by
U.K. Chancellor Alistair Darling for nations to guarantee lending
between banks, a suggestion that U.S. Treasury Secretary HenryPaulson hasn't ruled out.
``I don't think this particular G-7 meeting will rewrite history,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``I'm not optimistic anything material will come out.''
Paulson and Federal Reserve Chairman Ben S. Bernanke will meet with counterparts from the G-7, which comprises Canada, France, Germany, Italy, the U.K., the U.S. and Japan. Paulson
and top aides are still considering options on how to proceed with a
$700 billion bank bailout plan, including having the government acquire
preferred stock, two officials informed of the matter said.
Friday's
session sees an early close for US markets ahead of the Columbus Day
holiday on Monday