Euro Falls to Five-Month Low Against Yen


The euro fell to a five-month low against the yen as European stocks plunged by the most since 2001 on concern the global economy is slowing.

The yen also rose against the 16 most-active currencies as the risk of European companies defaulting on their bonds soared to a record, reducing demand for higher-yielding investments funded with cheap loans from Japan. European Central Bank council member Nout Wellink said economic growth in the 15-nation euro region may slow more than policy makers expected.

The euro declined to 153.58 yen as of 2:34 p.m. in London, after dropping to the lowest level since Aug. 17, from 156.20 yen in New York on Jan. 18. The common European currency rose 3.8 percent against the Japanese currency in 2007. Simmonds predicts the euro will fall to 150 yen or slightly below by the end of March.

It slipped to $1.4482 versus the dollar, the lowest since Dec. 27, from $1.4621 late last week. The single currency's decline against the dollar was the fifth in as many days, the longest losing streak since June last year. U.S. financial markets are closed today for the Martin Luther King Day holiday.

The euro dropped to 1.6008 versus the Swiss franc, after falling to the lowest level since March. Against the British pound, it weakened to 74.39 pence, from 74.77 pence.

Europe's Dow Jones Stoxx 600 Index, which tumbled 4 percent, extended its decline from a June high to 20 percent, the common definition of a bear market. The MSCI Asia-Pacific Index of regional stocks dropped almost 4 percent, prompting investors to reduce so-called carry trades.

Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings jumped 8 basis points to 80.25, according to JPMorgan Chase & Co., the highest since the index started in 2004.

The Japanese currency gained the most against the Brazilian real and South African rand. The yen advanced 2.4 percent to 58.32 per real and was 2.8 percent higher against the rand at 14.73 yen.

The Euro stayed weaker even as European Central Bank Executive Board member Juergen Stark said the bank still expects the economy to expand around 2 percent this year and is ready to raise interest rates to counter inflation.

Futures traders reduced bets that the euro will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed on Jan. 18. The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop, so-called net longs, was 44,982 on Jan. 15, compared with net longs of 51,902 a week earlier.


TradingEconomics.com, Bloomberg
1/21/2008 7:05:58 AM