AFX: UPDATE: Dlr, Euro, Pound Fall Sharply As Risk Trades Unwind
By Riva Froymovich
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The dollar, euro and U.K. pound continue to fall sharply into the New York trading session as investors unwind riskier bets back into funding currencies.
The fall of sensitive currency pairs Wednesday came with a drop in oil prices and disappointing news from big retailers that reignited fears of a consumer-led recession and pushed stocks lower. The Dow Jones Industrial Average was recently down nearly 300 points.
The heightened sense of fear is benefiting the lower-yielding yen and the dollar against the U.K. pound because they were commonly borrowed to invest in previously high-yielding currencies. But as central banks across the world slash interest rates and their economies look in severe danger, investors are pulling all out.
For instance, the U.K. pound has fallen almost six U.S. cents from its intraday high Wednesday to a more than six year low of $1.4896. Overnight, the Bank of England's quarterly inflation report essentially confirmed further interest rate easing in the very near future.
The euro and dollar also declined to two-week lows against the yen Wednesday, to Y118.10 from an intraday high of Y123.86 and to Y94.48 from an intraday high of Y98.08, respectively.
"We just see a massive sell-off in the risk trades," said John McCarthy, manager of currency trading at ING Capital Markets in New York. "When we see this irrespective of equity market activity, it tells you 'real money' has got leverage to unwind."
The "real money" are people moving their own funds, as opposed to borrowed money, including mutual funds, insurance companies or exporters.
Others also point to the Nov. 15 deadline for many hedge-fund clients to ask for year-end redemptions. Once this deadline passes, the pressure on hedge funds to sell assets to raise money for redemptions could ease.
Wednesday morning in New York, the euro was at $1.2538 from $1.2539 late Tuesday, while the dollar was at Y95.19 from Y97.80, according to EBS. The euro was at Y119.42 from Y122.65. The U.K. pound was at $1.4967 from $1.5419, and the dollar was at CHF1.1790 from CHF1.1871 Tuesday.
Notably, the euro has not suffered much against the dollar on the sell-off of risk Wednesday. The euro is near two-year lows against the U.S. currency and has been declining since reaching a record high this past August of $1.6040.
-By Riva Froymovich, Dow Jones Newswires; 201-938-5063; riva.froymovich@dowjones.com
(Maya Jackson Randall in Washington contributed to this report.)
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