Euro close to record highs ahead of ECB rate decision
Friday, 9 November 2007
TOKYO, Nov 8 (AFP): The dollar hovered close to record lows against the euro in Asian trade today as players fretted about the subprime loan crisis and awaited European interest rate decisions, dealers said.
They said the greenback tumbled against the yen briefly as players unwound risky "carry trade" bets on high-yielding currencies.
The euro was at 1.4660 dollars in Tokyo morning trade after 1.4634 in New York late Wednesday, when it had earlier struck a record high of 1.4731 on rumours that China might sell some of its huge dollar holdings.
The dollar fell to as low as 112.00 yen in early Asian trade, close to its August trough, before clawing back to 112.80, against 112.55 yen in New York.
The euro rose to 165.29 yen from 164.73.
The market was rattled by a heavy sell-off on Wall Street on Tuesday sparked by high oil prices, worries about the fallout from tighter credit conditions and news of a large loss at auto giant General Motors, dealers said.
Dealers also reacted nervously to reports that investment bank giant Morgan Stanley had announced large write-downs due to recent credit market volatility.
"Investors are shunning risk, reversing carry trades as they expect further uncertainty in the financial sector due to fallout from the subprime mortgage crisis," said Yosuke Hosokawa, head of the forex at Chuo Mitsui Trust Bank.
The yen tends to benefit from the unwinding of carry trade as it is often sold by speculators to buy higher yielding currencies such as the British pound, which hovered near to a 26-year high against the greenback.
The Australian dollar also held firm a day after the Reserve Bank of Australia hiked interest rates, luring investors in search of higher yields.
Traders also had their eyes turned towards a monetary policy decision by the European Central Bank (ECB) later Thursday.
The market expects bank officials to keep rates unchanged at 4.0 percent although it sees a chance of future hikes, dealers said. The Bank of England was also expected to stand pat today.
US Federal Reserve Chairman Ben Bernanke was due to testify before a Congressional committee with dealers looking for clues on prospects for another US interest rate cut, dealers said.
"With the ongoing shake-up of the financial sector, the Fed will be forced to make another cut whether it likes it or not," said Hosokawa.
The US central bank lowered rates last week to 4.75 percent after a hefty 50-basis point cut on September 18 to cushion the economy from recent mortgage and credit market woes.
The greenback had fallen sharply in overseas trade after reported comments from a senior Chinese official that his country should diversify its massive foreign exchange reserves away from the US currency.
"Reserve diversification by Asian central banks away from the dollar has been an underlying negative for the dollar for several years, and is likely to remain so over coming years," predicted Barclays Capital analysts.
They said the greenback tumbled against the yen briefly as players unwound risky "carry trade" bets on high-yielding currencies.
The euro was at 1.4660 dollars in Tokyo morning trade after 1.4634 in New York late Wednesday, when it had earlier struck a record high of 1.4731 on rumours that China might sell some of its huge dollar holdings.
The dollar fell to as low as 112.00 yen in early Asian trade, close to its August trough, before clawing back to 112.80, against 112.55 yen in New York.
The euro rose to 165.29 yen from 164.73.
The market was rattled by a heavy sell-off on Wall Street on Tuesday sparked by high oil prices, worries about the fallout from tighter credit conditions and news of a large loss at auto giant General Motors, dealers said.
Dealers also reacted nervously to reports that investment bank giant Morgan Stanley had announced large write-downs due to recent credit market volatility.
"Investors are shunning risk, reversing carry trades as they expect further uncertainty in the financial sector due to fallout from the subprime mortgage crisis," said Yosuke Hosokawa, head of the forex at Chuo Mitsui Trust Bank.
The yen tends to benefit from the unwinding of carry trade as it is often sold by speculators to buy higher yielding currencies such as the British pound, which hovered near to a 26-year high against the greenback.
The Australian dollar also held firm a day after the Reserve Bank of Australia hiked interest rates, luring investors in search of higher yields.
Traders also had their eyes turned towards a monetary policy decision by the European Central Bank (ECB) later Thursday.
The market expects bank officials to keep rates unchanged at 4.0 percent although it sees a chance of future hikes, dealers said. The Bank of England was also expected to stand pat today.
US Federal Reserve Chairman Ben Bernanke was due to testify before a Congressional committee with dealers looking for clues on prospects for another US interest rate cut, dealers said.
"With the ongoing shake-up of the financial sector, the Fed will be forced to make another cut whether it likes it or not," said Hosokawa.
The US central bank lowered rates last week to 4.75 percent after a hefty 50-basis point cut on September 18 to cushion the economy from recent mortgage and credit market woes.
The greenback had fallen sharply in overseas trade after reported comments from a senior Chinese official that his country should diversify its massive foreign exchange reserves away from the US currency.
"Reserve diversification by Asian central banks away from the dollar has been an underlying negative for the dollar for several years, and is likely to remain so over coming years," predicted Barclays Capital analysts.