13.11.2008 22:21

American focus: [M]

The yen gained agains US dollar and the rest or the main currencies as sell off on the Wall Street forced investors to redure carry trades positions.

``Despite the prospect of intervention, the yen remains a buy'' as the slowing global economy drives investors away from higher-yielding assets funded in the Japanese currency, Hardman said. The yen may rise to 90 against the dollar and to between 108 and 110 versus the euro by year-end, he predicted.
The euro traded at $1.2552 from $1.2505 yesterday after earlier falling to a two-week low against the dollar following a government report showing the German economy entered its worst recession in at least 12 years. The 15-nation currency also pared gains against the yen.

The euro earlier fell on speculation the German report will prompt the European Central Bank to cut interest rates.
``The German GDP figures didn't support the euro and we've had some more bad news for the world economy,'' said LutzKarpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``It looks like this is a worldwide recession and the dollar usually gains from this situation. Euro-dollar will go down further.''
The pound fell to $1.4600, the lowest since June 2002, following comments yesterday by Bank of England Governor Mervyn King that policy makers ``are prepared to cut bank rate to whatever level is necessary'' to make sure inflation hits the central bank's target.

``You're seeing people shy away from taking risk in those currencies and by default the dollar comes back as the winner,'' said Paul McCulley, a managing director at Newport Beach, California-based Pacific Investment Management Co. ``We've come down very quickly but we have a long way yet to go on the policy rates.''
Talk of intervention ``certainly spurs a weakness in yen, but I think that's a short-term move,'' said Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank Ltd. in New York. ``When you see more deterioration and more weakness coming out of the U.S. I think you're going to see yen strengthening.''
The Japanese currency will strengthen to 90 yen per dollar in three months as traders shun higher-yielding assets deemed riskier, Goldman Sachs Group Inc. said, revising earlier forecasts. The euro will fall to $1.20 per euro in the same period, Goldman said. The previous three-month projection was for the dollar at 112 yen and $1.45 per euro.
``Deleveraging and funding constraints have likely created a new source of foreign-exchange demand and supply,'' a Goldman team analysts led by New York-based Jens Nordvig wrote in a research note. ``We expect deleveraging patterns to continue into year-end, driving the dollar and yen stronger and putting pressure on higher-yielding currencies.''