Friday October 24, 2008 - 12:49:20 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen rockets as risk aversion hits extremes
* Yen surges broadly, dlr tumbles below 91 yen to 13-yr low
* Euro posts largest drop vs yen <EURJPY=>; 2-yr low vs dlr
* Euro area PMIs grim, UK econ shrinks more than expected
* Nikkei plunges below 8,000, European equities sink
(update prices, adds quotes)
By Tamawa Kadoya and Veronica Brown
LONDON, Oct 24 (Reuters) - The yen shot to multi-year highs
versus the dollar and euro on Friday, as tumbling global stock
markets intensified risk aversion, crystallising investor fears
on the possibility of a prolonged global recession.
Staggering moves seen in the stampede towards the
low-yielding Japanese unit, with euro/yen dropping 10 percent at
one point, also kindled speculation over how central banks might
This is because the yen's rally gathered speed, outstripping
major dollar gains against a basket of currencies, even as
Japan's prime minister and vice finance minister warned against
the adverse impact of financial market fluctuations.
"We are seeing extreme risk aversion. The thing to note in
the FX market is that it's getting a bit disorderly -- this is
becoming a rout," said SG currency strategist Phyllis Papadavid
The euro fell more than 10 percent against the yen to hit a
low of 113.82 yen <EURJPY=>, on track for its biggest monthly
percentage loss on record against the Japanese currency.
By 1200 GMT, the dollar was down more than 5 percent against
the yen at 92.50 yen <JPY=> after hitting a 13-year low of
90.95, according to Reuters data.
Japanese Prime Minister Taro Aso told reporters ahead of a
Asia-Europe summit in Beijing: "As I have been saying, I don't
have any intention to fret over rapid fluctuations in stock and
the dollar. But what could affect the real economy most are such
Japanese vice finance minister Kazuyuki Sugimoto said
separately that rapid and excessive currency movements were
Tokyo's Nikkei average .N225 sank 9.6 percent to a 5-1/2
year closing low on Friday at 7,649.08. European stocks followed
suit, tumbling some 8 percent .
Data from the euro zone on Friday proved dismal, with German
manufacturing sector contracting in October at its fastest rate
in over seven years. A flash estimate showed the Markit
purchasing managers' index (PMI) for the manufacturing sector
fell to 43.3 from 47.4 in September. See [ID:nLAG003090]
Sterling sank to a six-year low against the dollar <GBP=>,
while the pound also hit a record low against the euro <EURGBP=>
as high-yielders fell victim unwinding of highly leveraged
The pound was also hit after data showed the UK economy
shrank by a bigger-than-expected 0.5 percent in the third
quarter. The Swiss franc slid to 1.1485 francs per dollar
<CHF=>, its lowest since October 2007, but hit a 7-yr high
versus euro <EURCHF=>.
The sharp surges in the dollar and yen have raised concerns
that financial authorities may act in currency markets to rein
in volatile moves.
Reflecting the climate of fear, implied volatility on the
dollar/yen currency options for the one-month period spiked
above 44 percent on Friday <JPY1MO=>, while those for
euro/dollar <EUR1MO=> hit a record high.
"G7 central banks may need to exercise their mandate of
ensuring orderly FX markets by intervening in FX markets," ING
chief FX strategist Chris Turner said.
"While FX volatility over the last two months to a large
extent has been a symptom, not a cause, of the global financial
crisis, current FX volatility now seems to be exacerbating
global asset market declines," he added.
The dollar index, a gauge of its value against a basket of
six major currencies, was up 1.86 percent at 86.344 .DXY after
hitting a two-year high.
To combat the currency rout in emerging markets, the
International Monetary Fund was hurrying to approve by early
November a package that would let some "top-tier" emerging
market economies exchange local currencies for dollars to ease
strains, officials familiar with the plan said.
(Editing by Andy Bruce)
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