The Japanese yen fell from 113.99 to a six-week low of 114.49 against the dollar due to rally in global stocks. Euro and aussie rallied versus the Japanese yen from 163.76 to 164.91 and from 98.96 to 99.69 respectively. The single currency rose briefly from 1.4368 to 1.4415 against the dollar on thin Monday’s trading ahead of Christmas holiday.
U.S. stocks strengthened on Monday as a decline in the cost of borrowing in dollars and euros indicated that banks were more willing to lend to each other. The three-month London interbank offered rate, or Libor, for dollars fell to 4.84%. The three-month euro interbank offered rate, or Euribor, dropped to 4.76%, the lowest since Nov. 28. The Federal Reserve and the European Central Bank loaned $30 billion in 35- day funds on Dec. 21 to ease a liquidity squeeze related to mortgage losses. The Standard & Poor's 500 Index increased 0.8%.
Interest-rate futures showed a 76% chance that the Fed will reduce its benchmark rate of 4.25% by a quarter-percentage point at its Jan. 30 meeting, compared with a 94% chance a month ago.
Sterling also fell to a record low against the euro (eur/gbp rallied to 0.7291) on speculation on further interest rate cuts by Bank of England in 2008 after last week’s release of weak UK housing data and the vote outcome. Cable weakened from 1.9845 to 1.9755. Australian dollar and New Zealand dollar rose briefly from 0.8674 to 0.8721 and from 0.7621 to 0.7674 respectively. The greenback dropped against the Canadian dollar from 0.9935 to 0.9838.
Trading activity was light on Monday as Tokyo and some European centers were closed for holidays, while U.S. activity wound down. Most of the major markets will be closed on Tuesday for Christmas holiday except Japan. European centers will still be closed on Wednesday while U.S. will resume trading.