Dollar Gains On Global Economic Woes

Equity markets continue to fall around the globe when Asian market as well closed on the negative side. After the European market tumble the most yesterday since 9/11, the UK- FTSE100 tumbling 5.48% at its worst year start ever, the German DAX tumbled 7.16% and the French CAC40 6.83%, the Asian markets where quick to react with the MCSI falling 6.3%.The investors luck of faith in George Bush’s incentives plan to foster the US economy and to prevent a recession intensified the fears of a global economic slowdown. ``Most investors believe in the health of the global economy, and are only now beginning to see the flaw in their logic,'' said Taku Yamamoto, who helps oversee about $107 billion at the Pension Fund Association in Tokyo. ``This correction hasn't finished, and will continue until the optimists have been wiped out.''

The Japanese Yen edged to a five-month high against the euro and a 21-month peak versus sterling in volatile trade as a result of growing concerns that a U.S. slowdown may be too sharp for other major economies and emerging markets to escape unscathed. "Things are pretty hairy today," said Mitsuru Sahara, senior vice president of forex at Mitsubishi UFJ Bank. "The market is trying to figure out when the sell-off in stocks is going to climax," he said, adding that the yen was the beneficiary of panic selling in equities, which drove the Nikkei stocks average down more than 5 percent to a 2-1/2-year low. The yen traded around the levels of 106.00 against the dollar 152.80 vs. the euro and 205.50 vs the sterling at 06:58 (GMT).

Traders went bullish on the dollar on the view that other countries may find difficulties in coping with a US recession."Until recently, there had been expectations for a decoupling from a slowdown in the U.S. economy," said Tohru Sasaki, chief foreign exchange strategist for JPMorgan Chase Bank in Tokyo. "But if the U.S. falls into a recession, that would be a significant slowdown, meaning emerging markets and countries such as Australia are likely to be affected as well," Sasaki said. Growing speculations that the ECB will start to cut rate later in the year following initiated strong sells on the EUR/USD.

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