Japanese currency underpinned as global equities plunge
NEW YORK (MarketWatch) -- Plunging global equity markets and ever-deepening turmoil in the financial sector underpinned the Japanese yen, while sending the British pound to a nearly five-year low against the U.S. dollar.
"I think Britain and London's overwhelming exposure to the financial markets even makes the euro seem to be a little bit more of a safe haven in this environment, and I think that's why the pound is getting hit hardest of all the major currencies," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.
The British pound traded at $1.7011 against the dollar, rebounding from an earlier low of $1.6772 but down from $1.7177 following a sharp sell-off on Thursday. The drop marked the first move below the $1.70 level since December 2003.
The euro gained 0.6% against sterling to trade at 79.10 pence.
Britain is saddled with a large current account deficit and is sliding into a housing recession, noted Martin McMahon, a currency strategist at Credit Suisse in Zurich.
With interest rates headed lower still following the Bank of England's 50 basis point reduction in its key lending rate as part of Wednesday's coordinated, global rate cut, there's little to provide support for sterling, he said.
The next key chart support level for the pound versus the dollar stands at $1.6540, McMahon said.
The U.S. dollar stood at 99.88 yen, up from 99.46 in North American trade late Thursday and off the low below 99.00 yen seen earlier in the day. The yen was around 0.4% higher against the euro at 135.08 yen.
The yen has cemented its safe-haven status over the course of the crisis, rising from 145.11 yen versus the euro at the end of last week. Against the Australian dollar the yen was quoted at 65.03, on track for a more than 25% gain this week. Read about the yen's historic gains.
"There have been significant shifts in major cross rates. High-yielding currencies such as the Australian dollar and emerging market currencies remain under significant selling pressure," said strategists at Lloyds TSB. "The Japanese yen and Swiss franc are strengthening on risk aversion," which is also lifting gold.
The dollar was 0.3% lower against the Swiss franc, slipping to 1.1235 francs.
The Australian dollar was down 3.8% against the greenback, slipping to 65.80 U.S. cents.
The dollar index , which measures the currency against a trade-weighted basket of counterparts, was at 81.861, up slightly from 81.397 Thursday.
Asian equities nosedived Friday, following Thursday's steep U.S. drop, which took the Dow Jones Industrial Average below the 9,000 level for the first time since August 2003. See full story.
European bourses followed suit, with key indexes posting major losses. See Europe Markets.
In recent action, the Dow industrials were down 255 points at 8,323, having recovered from a nearly 700-point drop that took the blue-chip average below 8,000 for the first time in five years.
Global policy makers gather in Washington this weekend for the annual meetings of the International Monetary Fund and the World Bank. All eyes are on Friday's meeting of Group of Seven finance ministers and central bankers.
Amid the turmoil, U.S. authorities are set to be weighing far-reaching measures, including guarantees for billions in bank debt and insuring all U.S. bank deposits for a temporary period, according to a report in Friday's edition of The Wall Street Journal. See full story.
"The G-7 meeting this weekend is crucial with another wave of coordinated policy measures clearly needed to shore up confidence," McMahon said. It remains to be seen whether this will be enough."
