The Yen and Swiss Franc rose broadly on Friday as global equity markets were lower on renewed fears of further sub-prime mortgage-related write-downs in the US financial sector, reducing investors' appetite for risk.
A New York Times report that Merrill Lynch was expected to suffer $15 billion in losses from soured mortgage investments left investors reluctant to hold relatively risky carry trades in which cheap borrowing in the yen and Swiss franc fund purchases of high-yielding currencies. Analyst said The news on Merrill Lynch suggests to people that we haven't found the bottom from the sub-prime mortgage fallout.
On Friday, UsdJpy was down 0.7% at 108.86, after slipping to a session low of 108.63. EurJpy traded down 0.87% at 160.82, slightly off an intraday low of 160.66. UsdChf rallied to a 1-1/2-month low at 1.0979 before ending the week at 1.1015 -0.27% and EurChf scaled the lowest peak since late August at 1.6248 but subsequently retreated a bit to close at 1.6275 -0.45%.
US stocks fell sharply, while European shares were also down, with investors convinced that the worst from the US sub-prime crisis was yet to come. The Yen at times has been tightly correlated to equity markets as investors tend to price their risk perceptions in those markets.
The Dollar regained some of its poise against the Euro after Thursday's tumble following Federal Reserve Chairman Ben Bernanke's blunt comments on the economy that suggested the Fed would cut interest rates by an aggressive 50bp at its Jan. 29-30 policy meeting. Analysts said while the dollar appeared set to lose its yield advantage in favor of the Euro, investors were focusing on slower growth prospects for the Euro zone. Softer growth would prevent a hawkish European Central Bank from raising interest rates and even consider easing.
Short-term interest rate futures, which track market expectations for Fed policy, show a 50bp cut in the overnight target fed funds rate to 3.75% fully priced in, and also a 38% chance the Fed could lower rates by 75bp.
News that Canadian job losses in December were the heaviest since May 2003, pressured the Canadian currency. UsdCad rose 1% to 1.0191.
Meanwhile, EurGbp rose to a record high at 0.7587. It last traded at 0.7552, up 0.08% on Friday.
GbpUsd dipped below 1.9500 to a 10-month low as weak industrial output data confirmed investor expectations that the Bank of England would cut rates next month after leaving them at 5.50% on Thursday. It was last at 1.9565, down 0.25%.