Jumps as economic fears mount; dollar gains on euro
The Japanese yen registered strong across-the-board gains Thursday, rising as worries about that nation's economy and the global outlook undercut a short-lived rally in equity markets.
The dollar, which had appeared to take over from the yen earlier this year as the world's ultimate safe-haven currency, moved mostly higher but lost ground against the Japanese unit.
The dollar index which measures the greenback against a trade-weighted basket of six global currencies, stood at 87.870, up from 87.719 in late North American trading Wednesday.
The dollar dipped to 95.65 yen and traded recently at 96.22 yen, down from 97.48 yen late Wednesday. The break could point to a test of the 95-yen level in the short term, warned strategists at Lloyds TSB.
"This inevitably raises the question whether we are seeing a return of the yen as a refuge currency, and the correlation with equity markets which seemed to have broken down in January," they wrote in a research note.
The euro also traded defensively, fetching 122.88 yen in recent action, a loss of 1.7%.
Revised data released Thursday showed the Japanese economy shrank 3.2% in the final three months of 2008 -- leaving gross domestic product fully 12.1% below the level seen in the final quarter of 2007.
Preliminary estimates had indicated a 3.3% sequential decline and a 12.7% year-on-year contraction. Still, the upward revision underscored that the world's No. 2 economy is mired in a severe recession, economists said. Most Asian equity markets ended lower, with Europe following suit. See Asia Markets. See Europe Markets.
U.S. stock futures pointed to a lower open. Read Indications.
Meanwhile, the Swiss franc was mixed ahead of an interest-rate decision later Thursday.
The Swiss National Bank is widely expected to cut its key lending rate by a quarter of a percentage point, to 0.25%, according to surveys of economists. The decision is scheduled to be announced at 9 a.m. Eastern.
The euro traded lately at 1.4774 francs, off 0.2%. The dollar stood at 1.1558 francs, little changed from Wednesday.
Any changes in the Swiss lending rate could be overshadowed by measures to boost liquidity or weaken the franc, the Lloyds TSB strategists warned.
And economists at Commerzbank in Frankfurt said the Swiss National Bank would have to express concern about deflation risks for the euro to receive any support.
As for the dollar, its status as a safe-haven currency in recent months has been keyed to repatriation flows in times of risk aversion as well as turbulence in the equity markets.
It held up well against the major European currencies on Thursday, with the euro falling to $1.2783, down from at $1.2828.
The Commerzbank economists said a euro range of $1.245 to $1.29 would likely prove safe for the remainder of the week.
Lackluster European economic data will feed speculation about a further rate cut by European Central Bank -- as well as the possibility policy makers will be forced to follow the Bank of England into an aggressive quantitative-easing strategy.
"In this situation, it is difficult to see [the euro] breaking above the $1.29 area," they wrote.
Also weakening, the British pound traded at $1.3761, down from $1.3851. The euro rose versus sterling to trade as high as 92.82 pence, up from 92.57 pence late Wednesday.
Sterling has been under pressure following the Bank of England's announcement last week it would move to buy 75 billion pounds ($104 billion) of government bonds and other assets in a bid to pump up the money supply and avert a deflationary spiral. Read about the Bank of England's quantitative easing plan.
The central bank kicked off the strategy Wednesday, with the purchase of 2 billion pounds worth of the bonds, known as gilts. See full story.
