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London: The yen strengthened versus the dollar and euro yesterday as concerns over the health of the global economy saw investors buying the low-yielding currency despite rallying equities.
After falling in early Tokyo trade, the yen later regained ground even as Asian equities rallied, as investors remained wary about the credit market turmoil stemming from defaults in US subprime mortgages, and worries about the impact on other markets and overseas economies.
Sentiment on the financial sector took a further knock as French bank Societe Generale uncovered a 4.9 billion euro fraud from one of its traders and announced further writedowns of 2.05 billion euros related to the global credit crunch.
"If you look at what's happened this week, there's been enough in terms of surprises to keep everyone on their toes," said Jeremy Stretch, strategist at Rabobank. "Nervousness remains, liquidity is thin and volatility is exceptionally high."
The low-yielding yen initially slipped to around 107 yen to the dollar as an overnight rise in US shares pointed to a recovery in risk appetite, which tends to boost demand for higher-yielding currencies and assets.
But by 0856 GMT the dollar was down 0.6 percent at 106.03 yen. The euro fell 0.7 per cent to 155.00 yen. The euro was a touch softer versus the dollar at $1.4616.
Barometer
Moves in stock markets are regarded as a barometer of investor appetite for carry trades, which involve selling low-yielding currencies like the yen to invest in higher-yielding assets.
However the yen remains resilient and high yielding currencies like the New Zealand dollar are down despite global equities recovering their losses indicating that investor jitters are still prevalent.
Traders said the euro may stay under selling pressure if more signs emerge that weakness in the US economy is having a knock-on effect on the euro zone, which may fuel the argument for a rate cut by the European Central Bank.
These concerns were eased slightly on Thursday as the German Ifo business climate index came in slightly higher than expected, confounding analyst expectations, which were for a drop. Ifo said it had received most responses for its survey before this week's market turbulence.
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