Dollar sinks to 18-month low below 110 yen
Tuesday, 13 November 2007
TOKYO, Nov 12 (AFP): The dollar tumbled below the 110- yen level today for the first time in more than 18 months as growing jitters over the US subprime mortgage crisis sent investors fleeing for safe havens, dealers said.
The greenback fell to as low as 109.85 yen in Tokyo afternoon trade, dropping below the psychologically important 110 level for the first time since May 2006 as speculators exited risky trades.
The dollar later recovered slightly to 110.09 yen, against 110.66 in New York late Friday, when the greenback had already fallen sharply against the Japanese unit.
The yen also shot higher against high-yielding currencies such as the Australian and New Zealand dollars, as traders pared back risky "carry trades" that play on differing interest rates in different areas.
Markets have been spooked by a steady flow of bad news, including losses at major US banks from investments in securities backed by subprime mortgages to homebuyers with poor credit histories.
Dealers said growing jitters about the impact of the subprime loan crisis had increased speculation about a December interest rate cut.
"The biggest fear is a US recession," said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank, who believes that recession may be unavoidable.
"More bad news from the subprime market is going to come out, and we have not seen the worst yet. By the year-end, hopes that the US economic outlook remains bright will go up in smoke," he said.
The dollar had been holding up relatively well against the Japanese currency, in comparison to such currencies as the Australian dollar, euro and the Canadian dollar, due to the yen- funded carry trade.
But the unwinding of those positions has speeded up the greenback's decline against the yen since late last week, said Osamu Takashima, chief strategist at Bank of Tokyo Mitsubishi UFJ.
In yen-carry trade, investors raise funds in cheap currencies like the yen, and re-invest them into high-yielding currencies such as the Australian dollar.
The greenback fell to as low as 109.85 yen in Tokyo afternoon trade, dropping below the psychologically important 110 level for the first time since May 2006 as speculators exited risky trades.
The dollar later recovered slightly to 110.09 yen, against 110.66 in New York late Friday, when the greenback had already fallen sharply against the Japanese unit.
The yen also shot higher against high-yielding currencies such as the Australian and New Zealand dollars, as traders pared back risky "carry trades" that play on differing interest rates in different areas.
Markets have been spooked by a steady flow of bad news, including losses at major US banks from investments in securities backed by subprime mortgages to homebuyers with poor credit histories.
Dealers said growing jitters about the impact of the subprime loan crisis had increased speculation about a December interest rate cut.
"The biggest fear is a US recession," said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank, who believes that recession may be unavoidable.
"More bad news from the subprime market is going to come out, and we have not seen the worst yet. By the year-end, hopes that the US economic outlook remains bright will go up in smoke," he said.
The dollar had been holding up relatively well against the Japanese currency, in comparison to such currencies as the Australian dollar, euro and the Canadian dollar, due to the yen- funded carry trade.
But the unwinding of those positions has speeded up the greenback's decline against the yen since late last week, said Osamu Takashima, chief strategist at Bank of Tokyo Mitsubishi UFJ.
In yen-carry trade, investors raise funds in cheap currencies like the yen, and re-invest them into high-yielding currencies such as the Australian dollar.