The US Dollar dropped to fresh lows on Monday while the Yen surged after a meeting of industrialized powers ended with no words of support for the Dollar, offering a green light to speculative sellers. The Dollar was also pressured by Friday's 2.6% slide in Wall Street S&P Index and increasing speculation the Federal Reserve would cut interest rates next week.
In early Asian trading, UsdJpy went down to 113.48 low from 114.52 Friday close. The EurUsd climbed to a new high at 1.4349, from 1.4306 late on Friday, while the UsdChf dropped to 1.1602 low from 1.1663 close.
Analyst said "Bottom line, there was nothing from the weekend commentary to indicate any consensus forming in the Euro zone for intervention in the Euro any time soonÂ». Reporters noted US Treasury Secretary Paulson had repeated the "strong Dollar" mantra, but devalued it by emphasizing that currencies should be set by the market.
The only semblance of a consensus was on the Chinese Yuan, which leaders agreed it was undervalued. The G7 wants the Yuan to appreciate faster, which means that the US dollar will depreciate faster, as China leads a generalized Asian appreciation. One Dollar was buying 7.5080 Yuan on Monday and Forex dealers looked for the Chinese authorities to allow it to trade below 7.5000 later in the session.
Meanwhile, the slide in US equities, on mounting fears over the health of the US economy, sparked a flight to safety and an unwinding of carry trades, where investors borrow Yen at low rates to invest in higher yielding currencies like the Australian and New Zealand dollars. The reversal of these positions saw the Yen climb across the board while the AudJpy retreated to 100.17 low and the NzdJpy to 83.865 low.
Futures Markets pointed US yields had fallen sharply as the Fed funds futures market priced in around a 90% chance of another 25 basis point rate cut at the central bank's two-day policy meeting on Oct. 30/31.