The yen rose for a second day against the dollar as stocks tumbled on concern banks will record further writedowns as economies wilt, sapping appetite for higher-yielding assets funded by loans from Japan.
The yen extended gains versus Brazil's real and South Africa's rand after traders shunned so-called carry trades as banks extended their declines, oil slid toward $50 a barrel and U.S. Treasury two-year yields fell to a record. South Korea's won tumbled to the lowest in more than 10 years as investors steered clear of emerging-market assets.
``Equity markets are in deep trouble and that is strengthening the yen,'' said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany's second- biggest bank. ``The global economy looks to be heading for a major downswing, so we're seeing an increase in risk aversion.''
Stocks fell in Asia and Europe and U.S. index futures dropped after minutes released yesterday of the Federal Reserve's meeting last month showed policy makers predicted the U.S. economy will contract through mid-2009.
The British pound declined on speculation the Bank of England will cut rates in the face of a recession.
``Sterling is under pressure because of aggressive rate cuts,'' said Jeremy Stretch, senior strategist in London at Rabobank International, the third-largest Dutch banker. ``When you add a bust property market and heavily indebted consumers, international investors have decided it's not a place where they want to take positions.''
U.K. retail sales fell for a second month in October as rising unemployment and the financial crisis dissuaded shoppers from spending. Sales fell 0.1 percent on the month after dropping 0.5 percent in September, the Office for National Statistics said today in London. BOE policy makers are prepared to lower their benchmark rate from the current target of 3 percent, minutes of this month's BOE meeting showed yesterday.
``People are going to continue favouring the yen as a safe- haven trade,'' said Stuart Bennett, a senior strategist in London at Calyon. ``Economies are like cruise liners. They can't turn around very quickly. We still expect doom and gloom on the growth side and that environment is good for the yen.''
EUR/USD having shown low on $1,2465, the pair has become stronger in area $1,2540.
GBP/USD having established a session low in area $1,4820, the rate has receded in area $1,4900. Offers $1,4930.
USD/JPY having established session low in the field of Y94,95, the pair was corrected in area Y95,60.
US data starts at 1330GMT with the weekly jobless claims, which are expected to fall 10,000 to 506,000 in the November 15 employment survey week after surging 32,000 in the previous week to a seven-year high. Claims were at 479,000 in the October 18 employment survey week.
Further US data at 1500GMT sees the Philly Fed Business Outlook Survey for November and leading indicators for October. The Philadelphia Fed index is expected to improve to a still pessimistic reading of -35.0 in November after the October plunge. The leading indicators index is expected to fall 0.5% in October. Negative contributions are expected from falling stock prices and consumer confidence. These are expected to be offset by a sharp rise in the real money supply.
The weekly natural gas stocks data is due at 1535GMT. At 1900GMT, Treasury Secretary Henry Paulson is due to speak at the Reagan Presidential Library, in Simi Valley, California. Late data sees the 2130GMT release of the M2 money supply.