Nov. 23 -- The yen rose against all 16 most- actively traded currencies this week as a deepening U.S. property slump prompted investors to retreat from higher- yielding assets funded by loans in Japan.
The yen gained to the highest level since June 2005 against the dollar today, and rose to a three-month high against the pound. Freddie Mac, the second-largest U.S. mortgage-finance company, may report wider losses than it forecast as the slump in credit markets worsens, Moody's Investors Service said. The dollar fell to all-time lows against the euro and Swiss franc on expectations the Federal Reserve may cut borrowing costs next month.
``The main trend is for the yen to appreciate further because of risk aversion,'' said Hidetoshi Yanagihara, senior currency trader at Mizuho Corporate Bank in New York. ``The market is thinking the turmoil in the financial sector will continue. Short the dollar-yen is the best strategy.'' A short position is a bet that a currency will decline.
The yen gained 0.3 percent to 108.07 against the dollar at 11:09 a.m. in New York and has risen 2.8 percent this week. It earlier climbed to 107.55 per dollar. The yen also rose 0.6 percent to 160.16 per euro. Japan's currency touched 221.31 yen per pound, the strongest since Aug. 17.
The yen will trade at 105 against the dollar before year- end, according to Yanagihara.
In carry trades, investors sell currencies in countries with low borrowing costs and buy higher-yielding assets elsewhere, profiting from the difference.
Swiss Franc
The Swiss franc, another currency widely used to fund carry trades, gained against 15 of the 16 major currencies this week. It rose to a record 1.0890 versus the dollar today, and strengthened to a three-month high of 1.63 against the euro.
The pound fell to as low as 72.165 pence per euro, the lowest since 2003, after a report showed U.K. economic growth unexpectedly slowed to the weakest pace in a year during the third quarter.
China's yuan strengthened beyond 7.4 to the dollar for the first time since a fixed exchange rate was scrapped in 2005, as the central bank allowed faster gains before a visit by European officials next week.
Record Low
The dollar dropped to a record low against the euro earlier today on speculation the Fed will cut the target rate for overnight loans between banks a quarter-percentage point to 4.25 percent next month, while the European Central Bank stays on hold at 4 percent.
The U.S. currency dropped to $1.4967 per euro, the weakest since the single European currency's debut in 1999, and traded at $1.4822, from $1.4662 on Nov. 16 and $1.4849 yesterday.
The U.S. Dollar Index traded on ICE Futures in New York touched 74.484, the lowest since the gauge started trading in 1973. The index tracks the value of the dollar against six major currencies, including euro and yen.
The odds of the Fed cutting its benchmark rate to 4.25 percent on Dec. 11 are 94 percent, up from 66 percent a month ago, futures contracts traded on the Chicago Board of Trade showed. The Organization for Economic Cooperation and Development yesterday estimated losses from U.S. subprime mortgage foreclosures could reach as much as $300 billion.
``The market sentiment is so bearish for the dollar that they want to push it through $1.50 against the euro,'' said Boris Schlossberg, senior currency strategist at DailyFX.com in New York.
The median forecast of 38 analysts and strategists is for the dollar to trade at $1.47 to the euro by year-end, according to a Bloomberg News survey.
`Terminal Decline'
``There's speculation in the market as to whether the dollar is in terminal decline,'' said Michael Klawitter, a currency analyst at Dresdner Kleinwort in Frankfurt. ``It's looking increasingly possible that the dollar will lose its status as the major transaction and reserve currency.''
The euro has gained 12.1 percent against the dollar this year, prompting European Central Bank President Jean-Claude Trichet to repeat his opposition to ``brutal moves'' in world currencies. U.S. Treasury Secretary Henry Paulson reiterated last week he favors a ``strong dollar.''
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