Weekly Update

Japanese yen rallies against U.S. dollar; greenback extends gains against Euro and pound. The Japanese yen rose to its highest levels against the euro since May 2002 and traded near 13-year highs against the U.S. dollar as a decline in global stock markets prompted investors to continue retreating from the carry trade. The carry trade is the practice of borrowing money in countries with low interest rates for investment in higher yielding assets. With heightened anxiety about the prospect of a slowing U.S. and global economy, investors are continuing to exit holdings in higher yielding assets and repatriating those funds to Japan.

There had been some speculation that G7 countries might intervene to weaken the yen, but this speculation fell by the wayside after French Finance Minister Christine Lagarde did a Bloomberg interview where she said the G7 does not plan to intervene in the market despite concerns that volatility in the currency markets could threaten financial stability.

The Reserve Bank of Australia did intervene in the currency markets, selling its currency for a second day to defend the value of a weakening currency. The Australian dollar has fallen sharply in value as commodity prices coupled with the exodus from the carry trade exert downward pressure on the Australian dollar.

The British pound fell 3.2% against the U.S. dollar this morning, approaching give year lows. The value of residential property in England and Wales fell 7.3% from a year earlier, cementing views that the British economy is in trouble and interest rate cuts are likely. Sterling fell 1.7% against the euro today.

- contributed by Christopher Empett
Associated Foreign Exchange