Reuters U.S. one hundred dollar notes are seen in this picture illustration taken in Seoul February 7, 2011. South Korea added 4.39 billion to its foreign exchange reserves in January, lifting the balance to an all-time high, central bank data showed on Monday.
The greenback dropped to 77.38 yen in Tokyo morning trade from 77.68 yen in New York late Monday. The euro, under pressure due to the European debt crisis, inched down to $1.4175 from $1.4179, and fell to 109.68 yen from 110.23 yen.
And the Australian dollar fell below parity with the greenback for the first time since March as investors move out of higher risk commodity-based stock. The “Aussie” fell to 99.38 US cents, from 103.55 earlier.
Global stocks have plummeted in the wake of the Standard & Poor’s downgrade while gold, seen as a safe asset in times of financial turmoil, has surged to record highs.
“It’s like panic-selling. Investors are scurrying to sell with the stock market leading the downturn in a move to shun riskier assets,” said Gen Kawabe, senior dealer at Chuo Mitsui Trust and Banking.
National Australia Bank said in a research note that “investors are now looking for a circuit breaker to the current extreme bout of risk-aversion and global recession concerns”. The focus is on a US Federal Reserve meeting later Tuesday, and investors will likely be disappointed unless the Federal Open Market Committee suggests more quantitative easing is coming, it said.
Kawabe said: “It’s hard to tell at which point the markets will stop falling. But the upcoming FOMC meeting may help amid growing expectation for credit easing measures by the Fed.” The FOMC may take some liquidity measures later in the day, after the G7 and European Central bank also pledged to take steps, Sumino Kamei, senior analyst at Bank of Tokyo-Mitsubishi UFJ, told Dow Jones Newswires.
This could “in the near term ease cash flow concerns and curb the falls in the stocks,” leading to a respite in the deterioration of the risk-averse trading environment, Kamei said. The forex market kept a cautious eye on whether Japan, worried about the damage the high yen is doing to its export sector, will again intervene in currency markets as the greenback nears 77 yen, dealers said.
Japan last week stepped into the market to stem the rise of the yen, which threatens to derail the budding economic recovery from the March 11 earthquake, tsunami and nuclear disasters.
Japan’s Finance Minister Yoshihiko Noda said: “While I will continue to watch the market for the next several weeks, I will maintain close coordination and communication” with foreign monetary authorities. Noda also rejected media reports that he has plans to step down soon to launch a campaign to succeed unpopular Prime Minister Naoto Kan.
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