The Japanese yen and Swiss franc rose against major currencies on risk aversion as global credit-market losses prompted investors to sell higher-yielding assets funded by borrowing in Japan and Switzerland. One-month interbank lending rates in the euro (Euribor) rose to near seven-year highs on Tuesday, while one-month sterling London interbank rates (Libor) were fixed at a 9-year high although Treasury Secretary Paulson said on Monday the U.S. Treasury was close to brokering a mortgage aid plan to help troubled borrowers avoid losing their homes through foreclosure.
Dollar weakened against the Japanese yen from 110.54 to 109.56, while euro fell versus the yen to 160.90 before rebounding after a report showed that eurozone producer prices rose by 0.6% m/m or 3.3% y/y, the fastest pace this year. The single currency also rallied against the dollar from 1.4635 to 1.4768.
The British pound tumbled from 2.0676 to 2.0561. Euro strengthened versus the sterling from 0.7092 to 0.7179 on speculation of an interest rate cut by the Bank of England on Thursday.
The greenback rose against the Canadian dollar to 1.0153 after the Bank of Canada cut its benchmark interest rate a quarter-percentage point to 4.25% from 4.5%. The Bank of Canada said that ‘difficulties’ caused by the collapse of the U.S. subprime-mortgage market will take longer than expected to fix.
Wednesday will see the release of Australia’s third-quarter GDP, U.K. Nationwide consumer confidence, German, eurozone and U.K. PMI service index respectively, eurozone retail sales, U.S. ADP employment, productivity, factory orders and ISM non-manufacturing. The Reserve Bank of Australia will announce its interest rates decision and is widely expected to keep rates on hold at 6.75%.