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FOREX-Yen falls, high-yielding FX up on world c.bank action

Thu, Oct 9 2008, 09:14 GMT
http://www.afxnews.com

LONDON, Oct 9 (Reuters) - The yen fell broadly on Thursday and high-yielding currencies like the Australian dollar bounced back strongly as confidence tentatively returned to financial markets after the previous day's global coordinated interest rate cuts.

The Federal Reserve, European Central Bank, Bank of England and Switzerland, Canada and Sweden all slashed official rates by a half-percentage point on Wednesday in an attempt to calm the turmoil that has gripped financial markets.

Central banks and governments around the world also took aggressive action to unfreeze paralyzed money markets and get banks lending again. See [ID:nL986589].

This initially failed to boost sentiment or lift stock markets on Wednesday but the mood brightened on Thursday. European shares gained over 2 percent in early trade and U.S. stock futures pointed to a higher open on Wall Street.

The yen fell from Wednesday's six-month peak against the dollar and three-year high against the euro, as the panic which has seen investors pile into safe-haven assets eased.

Market players were now looking ahead to the meeting of the Group of Seven leaders at the weekend for further action.

"At least some kind of confidence has come back to the market and is supporting high-yielders and putting pressure on the yen," Antje Praefcke, currency strategist at Commerzbank said.

"I wouldn't expect an immediate strong retracement, but at least it should put a stop to all this panic selling," she said.

At 0830 GMT, the dollar was up 1.9 percent against the yen at 101.17, while the euro jumped 2.7 percent to 138.91 yen.

The euro also regained some ground against the dollar at $0.7058.

The dollar index fell 0.4 percent tp 80.61.

G7, MONEY MARKETS KEY

In a further boost to confidence on Wednesday, the UK government announced a bailout package for the beleaguered banking sector, providing 50 billion pounds to recapitalise banks, guarantees of up to 250 billion pounds for short and medium term debt, and at least 200 billion pounds in short-term lending from the Bank of England. See [ID:nL87769].

In a similar move, the U.S. Treasury Department is considering taking ownership stakes in many banks to try to restore confidence, the New York Times reported on its Web site on Thursday, quoting government officials. See [ID:nSYU005267].

The European Central Bank also halved the premium it charges banks for emergency overnight borrowing, upped the amount it pays on overnight deposits and offered unlimited weekly funds at a fixed rate. See [ID:nL9181361].

The boost to sentiment was tentative, however, and worries still linger over whether the bailout measures and coordinated rate cuts will be sufficient to resolve a crisis which many see as the worst since the Great Depression of the 1930s.

Officials from the G7 meet later this week ahead of the annual meetings of the International Monetary Fund and World Bank in Washington. Investors will be hoping for a strong signal that world leaders are capable of strong and coordinated action to restore much-needed confidence to markets.

Evidence their myriad measure to fix broken money markets are working will also be crucial.

"Clearly a lot more will be known once we see the latest overnight interbank lending figures and ... until we see some reaction there, we seem likely to remain - at least to an extent - in the dark as to where the major currency pairs can go next," said James Hughes at CMC Markets.

(Reporting by Jessica Mortimer; editing by Toby Chopra) Keywords: MARKETS FOREX

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