Euro, Pound Tumble

The euro fell below $1.28 for the first time since November 2006 and the pound tumbled to a five- year low on speculation European central banks will cut interest rates as the global economy heads for recession.

The single European currency also slid to the weakest in more than four years versus the yen as global stocks declined, reducing demand for higher-yielding assets funded by low-cost loans in Japan. The euro fell as low as $1.2743 before trading at $1.2842 at 8:14 a.m. in New York, from $1.3063 yesterday. It dropped to 126.29 yen, the lowest since April 2004, and last traded at 126.81 from 103.80 yesterday.

The pound declined to a one-week low versus the euro after Bank of England Governor Mervyn King said the U.K. is probably in a recession. The currency fell for a fourth day against the greenback after a report yesterday showed U.K. manufacturing confidence dropped to its weakest level in almost three decades. The pound dropped to $1.6203, the lowest level since September 2003, and traded at $1.63 from $1.6706. It also declined for a third day against the euro to 78.80 pence from 78.17.

Emerging-market currencies weakened as Argentina's planned seizure of private pension funds stoked concern the nation faces its second default this decade. The government of President Cristina Fernandez de Kirchner proposed yesterday to take control of 10 funds, including units of HSBC Holdings Plc and Banco Bilbao Vizcaya Argentaria SA.

Russia's ruble
fell for a sixth day against the dollar to the lowest level in two years, dropping as much as 1 percent to 26.9769. The South Korean won lost 3.2 percent to 1.363.02. Brazil's real dropped 4.6 percent to 2.3462 per dollar, and Mexico's peso declined 3.7 percent to 13.725. Argentina's peso was little changed yesterday at 3.2190 per dollar, as traders said the central bank sold reserves to shore up the currency.

Hungary's forint fell 0.2 percent to 277.75 per euro even after the central bank unexpectedly raised its key interest rate. The Magyar Nemzeti Bank increased the main rate 3 percentage points to 11.5 percent, the highest level in the European Union, in an attempt to curb the currency's declines.

The dollar
has gained 25 percent since touching a record low of $1.6038 per euro on July 15 on speculation the U.S. currency will benefit as the European economy slows.

The Australian and New Zealand dollars
fell after the UBS Bloomberg Constant Maturity Commodity Index yesterday declined toward its lowest level since January 2007 as prices of copper, gold and crude oil dropped. Raw materials account for 60 percent of Australia's exports and 70 percent of New Zealand's. The Australian dollar weakened 3.9 percent to 66.49 U.S. cents and New Zealand's dollar declined to 59.78 cents.

The yen
also rose against all of the major currencies on speculation a slowing global economy will prompt investors to pare holdings of higher-yielding assets funded in Japan. Japan's currency rose 1.3 percent to 98.80 per dollar from 100.14.,
10/22/2008 6:13:22 AM