Monday May 21, 2007 - 10:22:28 GMT
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FOREX NEWS-Yen at record low vs euro, risk appetite runs high
FOREX-Yen at record low vs euro, risk appetite runs high
Mon May 21, 2007 5:52 AM ET
(Updates price, adds quotes, changes dateline, byline)
By Natsuko Waki
LONDON, May 21 (Reuters) - The yen hit a record low against the euro on Monday as calm reaction to China's move last week on the yuan and interest rates combined with a lack of surprises at the weekend G8 meeting to whet investor risk appetite.
The Canadian dollar was the biggest mover, hitting its highest in almost 30 years against the U.S. currency after recent robust data boosted expectations of higher rates.
Group of Eight finance ministers issued a communiqu√© that was upbeat on global growth and made no mention of currencies. The ministers said currencies were not discussed.
Financial markets shrugged off China's move on Friday to raise rates and widen the yuan's trading band, with global equities hitting record highs. This in turn stimulated investor risk appetite, fanning flows into high-return currencies at the expense of the low-yielding yen and Swiss franc.
"China news reintroduced some two-way risk to the market. But domestic factors are still the key determinants for the yen," said Todd Elmer, currency strategist at Citigroup.
"Very expansive liquidity and accommodative financial conditions will undercut the yen for some time to come. It will continue to foster outflows from Japan particularly from the retail sector."
He added: "The resilience of markets may reflect broader strength in risk appetite and the macroeconomic backdrop which fostered this elevated risk appetite hasn't really changed."
The euro hit a record high of 163.94 yen , before easing back to 163.81 by 0935 GMT. It also hit a lifetime peak of 1.6614 Swiss francs . The dollar was up 0.2 percent at 121.30 yen , close to Friday's three-month peak.
The Canadian dollar was up 0.4 percent at C$1.0836 per U.S. currency . The euro was steady at $1.3501 , some way below a record high just above $1.3680 hit last month.
U.S-CHINA TALK IN FOCUS
Investors are eyeing a meeting between U.S. Treasury Secretary Henry Paulson and China Vice Minister Wu Yi on May 22-23 in Washington where discussion on trade relations, including the value of the yuan, is expected.
The market showed little reaction to comments from European Central Bank Governing Council member Klaus Liebscher who said monetary policy needs to be pre-emptive. ECB's vice president Lucas Papademos made similar remarks.
ECB president Jean-Claude Trichet is due to attend an award ceremony in Madrid later.
Elsewhere, investors are eyeing the future of the single Gulf monetary union after Kuwait dropped its exchange rate peg to the dollar and adopted a basket of currencies.
The Gulf countries have been accumulating hefty FX reserves thanks to high oil prices and diversifying away from dollars.
"Greater FX flexibility and slower reserve accumulation across the emerging world will eventually reduce the huge distortion in the dollar's value caused by central bank reserve diversification," HBOS said in a note to clients.
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