Wednesday October 22, 2008 - 20:41:01 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar jumps to 2-yr peak on global recession fears
* Dollar hits 2-year high vs euro and currency basket
* BoE's King's recession comments rattle investors
* Yen rises broadly, global recession fears hurt stocks
(Adds details, updates prices, changes byline)
By Nick Olivari
NEW YORK, Oct 22 (Reuters) - The U.S. dollar jumped to a
two-year high on Wednesday as a deteriorating global economy
and concern that financial market stability is still too far
away spurred investors to liquidate risky assets.
The dollar climbed to a two-year high against the euro and
a five-year peak against sterling, with analysts citing remarks
by Bank of England Governor Mervyn King on Tuesday that the
British economy was probably entering its first recession in 16
Fears of a global recession have seen U.S.-based investors
selling their assets in both developed and emerging markets and
bringing the money back home, boosting the dollar.
At the same time, major central banks, excluding the
Federal Reserve, are expected to aggressively cut interest
rates to shore up growth, lending the dollar more support.
The yen climbed to it's highest against the euro since
November 2003, with the low-yielding Japanese currency also
benefiting from the exodus from risky assets after being dogged
by carry trades for years.
Carry trades are strategies in which risk-taking investors
borrow cheaply in low-yielding currencies such as the yen then
invest the debt in the assets of countries offering higher
On Tuesday King said, "Not since the beginning of the First
World War had our banking system been so close to collapse. We
are far from the end of the road back to stability ..."
Analysts said these remarks heightened fears about a global
recession and reminded investors that while governments
globally had taken aggressive steps to shore up the financial
sector it could take a while to see results.
"It's a market driven by fear," said Vassili Serebriakov,
FX strategist at Wells Fargo in New York.
"Those overwhelming fears are driving dollar and Japanese
yen strength today, despite some improvement in the money
markets. Weaknesses in the global equities, commodity markets
and emerging market currencies are also contributing."
The euro fell as far as $1.2740, according to electronic
trading system EBS, its lowest since November 2006. It was last
down 1.7 percent at $1.2830 <EUR=>, according to Reuters data.
The British pound dropped to $1.6153 <GBP=>, its weakest in
five years. It was last down 2.7 percent at $1.6240.
KING SPOOKS INVESTORS
The ICE Futures U.S. dollar index .DXY, which measures
the dollar's value against a basket of major currencies,
climbed to a two-year high of 85.921, before pulling back
slightly to be up around 1.4 percent at 85.588.
"Whether or not the BoE Governor was speaking the truth,
given how vulnerable markets are, this may not have been the
time to speak it," said Jon Gencher, director of FX sales at
BMO Capital Markets in Toronto.
"There is still all sorts of talk of U.S. names
repatriating U.S. dollars, ongoing pullback from emerging
markets and the sense that many participants had underestimated
the speed and magnitude of the U.S. dollar rise and got caught
out on their hedging."
Analysts reckon the euro could find some support versus the
dollar around $1.2500 in the near term and stage a rebound back
"The dollar is overbought in terms of technicals (and) it's
probably coming up against some strong resistance here in the
short-term," said Michael Woolfolk, senior currency strategist
at the Bank of New York Mellon in New York.
"This over-reaction to King's comments is most likely to
dissipate and we should see a relief rally in the euro. We
should be back above 1.30 if not 1.35 before next week."
Despite the dollar's broad gains, it fell 2.7 percent to
97.660 yen <JPY=> as the ongoing unwind in carry trades
extended the Japanese currency's rally with a session low of
97.250. The dollar's losses were also compounded by a sharp
drop in stocks on Wall Street.
The euro dropped as low as 124.66 yen <EURJPY=>, its lowest
level since November 2003, according to Reuters data. It was
last down 4.4 percent at 125.29 yen.
Underscoring the global recession fears, U.S. crude oil
CLc1 fell to its lowest since June 14, 2007 at $66.20 before
settling at $66.75.
High-yielding currencies were hammered against the yen,
with sterling <GBPJPY=R> dropping as low as 157.19 yen,
according to Reuters data. The Australian dollar <AUDJPY=R>
fell to 64.96 yen and the New Zealand dollar <NZDJPY=R> dropped
to 56.87 yen.
(Reporting by Nick Olivari and Lucia Mutikani; Editing by
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