Wednesday February 6, 2008 - 11:51:15 GMT
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Reuters - www.reuters.com
FOREX News-Yen gains on fears of global economic slowdown
(Changes byline, updates prices, adds quotes)
By Toni Vorobyova
LONDON, Feb 6 (Reuters) - The yen gained against the dollar
and euro on Wednesday as worries about the health of the global
economy and a sharp sell off in Asian equity markets made
investors less willing to take on risk.
In such an environment, they tend to buy back the Japanese
currency, having previously borrowed it as a source of cheap
funding for relatively risky carry trade bets in higher-yielding
Worries about the global economic outlook were stoked on
Tuesday by a much bigger than expected plunge in the U.S.
Institute for Supply Management's non-manufacturing index, which
posted its biggest monthly decline on record.
There were also signs that the slowdown will not just be
limited to the United States, as euro zone retail sales fell on
the month in December despite Christmas shopping, while growth
in the bloc's service sector slowed to almost a standstill in
"This is the kind of session that's dominated by risk
aversion, with concerns about global economic risk -- not only
in the U.S. but also now in Europe -- and equity markets
suffering," said Carole Laulhere, currency strategist at Societe
Generale in Paris.
By 1118 GMT, the dollar was down a third of a percent at
106.46 yen <JPY=>, bringing its losses for the year so far to
over 4 percent.
The euro fell 0.4 percent to 155.70 yen <EURJPY=>. It also
eased against the dollar, to $1.4621 <EUR=> -- more than three
cents below last November's record highs.
ECB CUTS TO COME?
The European Central Bank is widely seen leaving rates at 4
percent on Thursday, leaving the focus on president Jean-Claude
Trichet's post-decision news conference.
"Any suggestion that the next move (in rates) will be lower
-- and possibly as soon as the second quarter of 2008 -- could
initiate further selling of the euro," CMC Markets said in a
Futures markets expect the ECB to cut interest rates by 50
basis points by the third quarter FEIU8 and are split on a
further quarter-percentage point easing by the end of the year.
Adding to downward pressure on the euro were worries about
European banks -- whose earnings season kicks off this week --
reporting more losses related to troubles in the U.S. subprime
mortgage market and the subsequent credit crunch.
Currency market activity slowed in late Asian trading as
financial markets in China, Taiwan and South Korea were closed
for the Lunar New Year holiday.
Wednesday's calendar features speeches from several Federal
Reserve policymakers, as well as fourth quarter data on U.S.
productivity and unit labour costs.
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