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, according to the median forecast of 30 economists
surveyed by Bloomberg News.