Yen and Swiss franc edge higher
NEW YORK |
NEW YORK (Reuters) - The Japanese yen and the Swiss franc edged higher on Wednesday as investors avoided riskier assets despite the Federal Reserve's hefty interest rate cut on Tuesday and a rebound in U.S. stocks.
U.S. benchmark indexes tumbled on Tuesday after the Fed's announcement before rebounding in late trade on Wednesday and soaring higher near the close. The rebound in stocks gave some support to the U.S. dollar in late trading in New York.
Still, the Fed's 75-basis-point reduction in its benchmark overnight lending rate to 3.5 percent did little to calm investor fears of a U.S. recession and its impact on the global economy, analysts said.
Moves in stock markets are regarded as a barometer of appetite for carry trades, which involve borrowing in the low-yielding yen to buy higher-yielding currencies and assets.
"It's the carry trade in full swing here," said Mark Meadows, a strategist at Tempus Consulting in Washington. "The yen is the main beneficiary."
Investors continued to fret about a possible recession in the world's largest economy and grumble that European central banks have given no indication they intend to follow the Fed's rate cut.
In earlier trading, the dollar dove to 104.98 yen, its lowest level since May 2005, according to Reuters data. It was last trading down 0.3 percent at 106.09 yen.
"There are lots of short-yen positions that could still be covered and that could drive the yen higher and other currencies lower against the yen," said David Gilmore, partner at FX Analytics in Essex, Connecticut.
The euro dropped 0.3 percent to 155.19 yen, but off a session low of 152.81. The dollar slipped 0.5 percent against the Swiss franc to 1.0891.
Low-yielding currencies such as the yen and Swiss franc tend to attract flows during periods of uncertainty as the low interest rates reflect the capital surplus of their respective countries.
"Despite the Fed's move yesterday there is still a great desire to reduce risk, and the way that works in foreign currency markets is to buy low-yielding currencies," said Marc Chandler, senior currency strategist at Brown Brothers Harriman in New York.
Analysts said investors were also disappointed that other central banks, particularly the European Central Bank, had not followed the Fed's emergency interest rate cut.
Euro zone interest rate futures reflect expectations of around 75 basis points of ECB easing this year from the current 4 percent level, with the first rate cut expected before June. Futures at the start of January pointed to the ECB being on hold.
Elsewhere, New Zealand's central bank left interest rates unchanged at 8.25 percent as expected. The kiwi last traded 0.2 percent lower per U.S. dollar at $0.7639.
(Additional reporting by Lucia Mutikani in New York; editing by Gary Crosse)
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