Yen stronger despite interest rate cuts

Story link: Yen stronger despite interest rate cuts

The Japanese yen strengthened Wednesday on the theory that interest rate cuts by several central banks will not be enough to encourage investors to put their money into high-risk carry trades in which they use low-yielding currencies such as the yen to finance purchases of higher-yielding currencies.

In a move to try to stem damage to the global economy from the ongoing- financial crisis, the US Federal Reserve cut US interest rates half a percentage point to 1.5 percent while at the same time the European Central Bank cut its rate to 3.75 percent, the Bank of England reduced its rate to 4.5 percent, the Bank of Canada set its interest rate at 2.5 percent and Sweden’s Riksbank cut its rate to 4.25 percent.

Additionally, China cut its interest rate to 6.93 percent, the second time in three weeks it has cut rates, while Switzerland also lowered its interest rate and the Fed cut its discount rate, what it charges on direct loans to banks, to 1.75 percent.

There was also an announcement that the G-7 finance ministers and central bank leaders will meet in Washington, D. C., on Friday for talks on the current financial crisis.

At shortly before noon in New York, the yen traded at ¥136.2941 to the euro and at ¥99.7250 to the US dollar while it was at ¥66.6611 to the Australian dollar and at ¥59.895 to the New Zealand dollar.

The Aussie and the kiwi were also weaker versus the US dollar, which traded at 66.84 cents US to the Aussie and at 59.82 cents US to the New Zealand dollar.

The US dollar was weaker versus the euro, trading at $1.3667 to the shared currency at nearly noon in New York, but it was stronger in relation to the Mexican peso and Brazilian real as demand for emerging market currencies declined.

It took 13.149 pesos to buy a dollar and the Brazilian real was trading at R$2.1970 to the greenback.

The South African rand weakened as global equities markets saw declines and demand for higher-yielding currencies fell.

The rand traded at R9.2555 to the US dollar and at R12.667 to the euro at late morning in New York.