Bet on Euro to Drop 7% Against Yen UBS Says

Geoff Kendrick – a currency analyst with UBS AG – has gone on record advising clients and investors to buy one-month options granting the right to sell the euro as he feels the euro could lose more than seven percent against the yen. Kendrick expects the euro to lose more as money-managers turn away from higher-yielding assets that could be especially susceptible to the growing financial turmoil.

“We continue to see risk aversion as the dominant theme, with the market yet to fully realize the extent of the economic slowdown to come,” explained Kendrick.

For the past three months, the euro has lost more than 26 percent of its value to the yen as the global financial crisis continues to clog the markets. While the euro did make some gains in late October, this can be attributed to speculation that the Bank of Japan will sell yen for the first time in four years in order to halt recent losses in the yen.

The Bank of Japan recently reduced its benchmark lending rate from 0.5 percent to 0.3 percent and the European Central Bank (ECB) is expected to also reduce rates over the next two quarters with a recent survey predicting that the ECB will slash rates on November 6th by 50 basis points to 3.25 percent. More

Bank of Australia Lowers Interest Rates to 5.25%

The Bank of Australia lowered the country’s benchmark interest rate to 5.25 percent from 6 percent. The reduction exceeded the speculation leading up to the expected rate cut as most commentators felt the Bank would reduce the rate by half a percentage point.

“International economic data have continued to point to significant weakness in the major industrial economies, and there have been further signs that China and other parts of the developing world are slowing as well,” the bank’s governor Glenn Stevens said in a statement.

The global credit crisis has hit the Australian economy particularly hard and the Australian dollar has been one of the most volatile of the big seven currencies. This rate cut – the third in the past three months – reduces the key lending rate to its lowest level since March of 2005. Australia recently announced a $6.9 billion USD plan to help stimulate the economy and Bank of Australia officials hope this – together with the rate reductions – will get the economy back on track.

“This is the additional rate relief that Australian families and businesses need in the face of the global financial crisis,” noted Bank of Australis Governor Glenn Stevens. “It will strengthen our economy at a vital time.” More

Pound Falls to Euro As Recession Concerns Grow

The pound continues to struggle early this morning on news that construction in the UK declined during the month of October providing further evidence that England is in the grips of a recession. As a result, hints of an impending rate cut by the Bank of England grew louder.

“We still see the pound as vulnerable in the current climate,” Brian Kim, a currency strategist at UBS AG noted in a report. “We now expect rates to fall to 2 percent in the upcoming quarters as aggressive cuts are needed to help the economy recover.” More

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