Yen Rises to 3-Year High

The yen rose to a three-year high against the euro and gained versus the dollar as interest-rate cuts by global central banks failed to boost confidence, encouraging investors to sell higher-yielding assets.

Japan's currency surged against the Australian dollar, the New Zealand dollar and the Norwegian krone on speculation a plunge in global stocks will lead to a drop in carry trades. The Mexican peso and the Brazilian real plunged versus the greenback on reduced demand for emerging-market currencies.

The yen gained 1.1 percent to 136.36 per euro at 9:36 a.m. in New York, from 137.89 yesterday. It touched 134.17, the strongest level since August 2005. Japan's currency advanced 1.4 percent to 100.03 per dollar from 101.47. The dollar dropped 0.3 percent to $1.3634 per euro from $1.3588. It touched $1.3444 on Oct. 6, the strongest since August 2007, when the credit market crisis gathered momentum.

The Federal Reserve reduced its target lending rate by a half-percentage point to 1.5 percent, while the European Central Bank and the central banks of the U.K., Canada, Sweden and Switzerland also reduced rates. Separately, China's central bank lowered its key one-year lending rate.

The yen gained 7.8 percent to 66.04 against the Aussie, 6.8 percent to 59.02 versus the New Zealand dollar and 1.9 percent to 16.06 against the krone on bets investors will abandon trades in which they get funds in a country with low borrowing costs buy assets where returns are higher.

The real dropped 6 percent to 2.4501 against the dollar, while the peso declined 7 percent to 13.2339.

Sterling and the euro reversed earlier losses on Wednesday as currency markets responded to the news of co-ordinated interest rate cuts by central banks across the globe.

The British pound added 0.4 per cent against the US dollar to $1.7586, and the euro climbed 0.8 per cent to $1.3733, after the Bank of England, the US Federal Reserve, the European Central Bank and the central banks of Canada, Sweden and Switzerland reduced the cost of borrowing within their economies by 50 basis points, in a dramatic move to stimulate the troubled markets.

Amid the growing risk aversion, the pound had also tumbled to a seven year low against the yen, down 3.1 per cent at Y172.48, while the low-yielding Japanese currency surged across the board as investors sought a safe haven. The yen leapt 11.3 per cent against the Australian dollar to Y64.55, and was up 9.2 per cent versus the Kiwi at Y58.16.

Canada's currency advanced, snapping a four-day losing streak, as global central banks cut interest rates by a half-percentage point. The Canadian dollar climbed as much as 0.7 percent to C$1.1120 per U.S. dollar, from C$1.1058 yesterday at 9.30 a.m. in Toronto.

The Australian and New Zealand dollars slumped to their lowest level in more than five years against the greenback as investors sold higher-yielding assets on concern frozen credit markets will stall the global economy.

The Australian dollar fell as much as 9.8 percent to 64.51 U.S. cents, the weakest level since 2003, before trading at 66.99 cents as of 12:02 p.m. in London, from 71.50 cents in late Asian trading yesterday. It rebounded following a half percentage point rate cut by the European Central Bank, the Federal Reserve and other central banks. The so-called Aussie slid 9.6 percent to 65.88 yen, after touching 63.75, the lowest since 2002.

The New Zealand's dollar dropped as much as 7.95 percent to 57.92 U.S. cents, the weakest since 2003, before trading at 60.25. It slid 6.9 percent to 59.70 yen.

The India's rupee fell as much as 1.9 percent to 48.77 today in Mumbai on speculation a rout in global equities will encourage investors to take more money out of the nation., Bloomberg, Financial Times
10/8/2008 7:02:24 AM