The dollar tumbled below 100 yen on Thursday, underlining concerns among monetary officials about extreme currency moves, while equities sank as worry about serious stress in credit markets persisted.
Oil clung close to its record high above $110 a barrel. European shares were down 2.2 percent and Japanese equities lost more than 3 percent.
Much investor focus was on the sinking dollar, which fell 1.6 percent on the day to a 12-year low of around 99.8 yen before recovering to around 100 yen, a sign of both current U.S. economic weakness and an unwinding of risky trades involving yen borrowing.
“We are entering dollar crisis mode,” said Derek Halpenny, currency economist at BTM-UFJ in London.
“Looking at the markets there is a complete loss of confidence and that’s because the markets are concerned over the U.S. financial sector and ultimately what the (Federal Reserve) will be forced to do to support that sector,” he said.
The recent currency moves have aroused concerned comments from European Central Bank President Jean-Claude Trichet and Japanese Finance Minister Fukushiro Nukaga.
Trichet, in an interview with French magazine Le Point, said disorderly swings in currencies were undesirable.
“In the present circumstances, I am concerned by excessive exchange rate movements,” he told Le Point.
Nukaga said dollar/yen exchange rate moves were a reflection of dollar weakness rather than yen strength and noted that the Group of Seven industrial nations shared the view that excessive foreign exchange moves are undesirable for economic growth.
The euro also fell 1.4 percent against the yen to 156.06 yen, although it was flat versus the dollar at $1.5583, a breath below its all time high.
HIGH OIL, LOW EQUITIES
The tumbling dollar, meanwhile, poses a dilemma for the hawkish ECB, which is holding off cutting interest rates because of concern about inflation pressures.
A rising oil price is one of the reasons for the pressure, but the price is spurred on by a weak dollar as this makes oil cheaper in other currencies. Oil was trading around its record above $110 as investors weighed the dollar’s weakness against bloated U.S. crude stocks.
U.S. crude for April delivery rose 15 cents to $110.07 a barrel, hovering below the all-time peak of $110.20 hit on Wednesday.
“We’re looking at the U.S. dollar, we’re looking at speculation, we’re looking at geopolitical. Those three things tying together are defying fundamentals,” said Peter McGuire, managing director of Commodity Warrants Australia.
Global stocks shrugged off the last vestiges of euphoria from Fed-led moves earlier in the week to provide liquidity to credit markets, renewing their downward route on worries about the health of the financial sector.
Carlyle Capital Corp, an affiliate of private equity firm Carlyle group, added to concerns, saying late on Wednesday its lenders are likely to take possession of its remaining assets after it defaulted on $16.6 billion of debt.
Financials led European shares sharply lower.
The FTSEurofirst 300 index was down 2 percent having rallied for two days.
Setting the tone, U.S. stocks fell overnight and Japan followed suit.
Japan’s Nikkei benchmark sank to a new 2-1/2 year closing low, down 3.3 percent at 12,433.44. The broader TOPIX was down 3.1 percent at 1,215.87, also a 2-1/2 year low.
Euro zone government bonds opened higher as investors sought safety.
June Bund futures were 41 ticks higher at 118.04. Ten-year yields were off 3 basis points at 3.717 percent. (Reuters)
