The yen and the dollar rose against the euro and headed for record
monthly gains as signs of a global recession led investors to seek
safety.
Japan's currency also advanced after the Bank of Japan lowered the
target lending rate by 0.2 percentage point to 0.3 percent. The euro
fell as inflation in the 15 nations that share the currency slowed to
the lowest since January, making it easier for the European Central
Bank to lower borrowing costs.
``There's decent dollar repatriation, and you cannot fight the flows,''
said Steven Butler, director of foreign-exchange trading in Toronto at
Scotia Capital Inc., a unit of Canada's third-biggest bank. ``I cannot
remember any time that we had so much volatility and illiquidity.''
U.S. investors have cut their holding of foreign assets to 23.5 percent
of their portfolios by September from almost 26 percent earlier this
year, according to UBS.
As global growth will be very weak next year, we expect U.S.
repatriation by risk-averse investors will continue to benefit the
dollar.
Japan's currency has risen 17 percent against the euro in October, the
biggest monthly gain since the European currency's introduction in
1999. The dollar has increased a record 10.6 percent versus the euro.
The greenback is down 7.8 percent against the yen, the biggest decline
since 1998, when hedge fund Long-Term Capital Management LP collapsed.
The yen increased 4.8 percent to 64.24 against the Australian dollar
and 3.1 percent to 56.63 versus the New Zealand dollar today on
speculation the global economic slump will encourage investors to
unwind carry trades, in which they get funds from a country with low
borrowing costs and buy assets where returns are higher.
BOJ Governor Masaaki Shirakawa told a press briefing that the Japanese
economy had clearly worsened this month and that three dissenters had
wanted a quarter-point cut. One favored no reduction and four voted for
the move.
``The reluctance of the BoJ to join the more aggressive moves of the
Fed has hit risk appetite,'' analysts led by Hans- Guenter Redeker,
London-based global head of currency strategy at BNP Paribas SA, wrote
in a client note. The move suggests the Japanese central bank ``is
nowhere near ready to introduce quantitative easing steps.''
The euro weakened as the European Union statistics office reported that
inflation in the countries sharing the currency eased to 3.2 percent in
October from 3.6 percent the prior month.
The ECB participated in a coordinated interest-rate reduction by global
central banks on Oct. 8 to prevent the international financial system
from collapsing, reducing its benchmark rate by a half-percentage point
to 3.75 percent.
Policy makers next meet Nov. 6, when they will probably cut the
region's main refinancing rate to 3.25 percent, according to the median
forecast of 26 economists surveyed by Bloomberg News.
The pound weakened 1.7 percent to $1.6165 after London- based market
researcher GfK NOP said U.K. consumer confidence in October fell to the
lowest since at least 1974. Sterling has dropped 9.2 percent this
month, the biggest decline since investor George Soros drove the
currency out of Europe's system of linked exchange rates in 1992.
The Bank of England will lower its main rate by a half- point to 4
percent when it announces its next decision on Nov. 6.