Yen Gains to Record Versus Pound on Global Economic Concerns

Jan. 21 (Bloomberg) -- The yen rose to a record high against the pound and gained to the strongest level versus the euro since October as concern a global slowdown will worsen prompted investors to sell higher-yielding assets.

Sterling fell to the lowest since 2001 against the dollar and declined to a two-week low versus the euro before a U.K. report that may show unemployment climbed at the fastest pace since 1991, backing the case for the Bank of England to cut interest rates next month. The euro declined to the lowest in six weeks versus the dollar before a German report that may show producer prices dropped for a second month, giving more scope for the European Central Bank to lower borrowing costs.

“The market is reflecting the downside risk of the global economy and an increase in risk aversion by investors,” said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital. “The yen carry trade is being unwound and the yen is the beneficiary. This move will continue for a long time.”

The yen rose to 124.55 per pound as of 9:20 a.m. in Tokyo from 124.47 late in New York yesterday. It reached an all-time high of 124.02. The currency advanced to 115.58 per euro from 115.85 yesterday. It touched 115.30, the strongest since Oct. 28. The yen was little changed at 89.79 against the greenback.

The dollar advanced to $1.2873 per euro from $1.2904 late in New York yesterday. It reached $1.2845, the strongest since Dec. 9. Sterling weakened to $1.3871 from $1.3928. It touched $1.3811, the lowest since June 2001. Against the euro, the pound slid to 92.79 pence from 92.62 pence yesterday when it reached 93.25 pence, the lowest since Jan. 5.

Jobless Benefits

Australia’s dollar slid 2.7 percent to 58.20 yen and New Zealand’s currency slumped 2.7 percent to 46.65 yen from late in Asia yesterday. The Nikkei 225 Stock Average fell 2.7 percent.

Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.1 percent in Japan, encouraging investors to borrow in yen and buy higher-yielding assets elsewhere.

In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher rates. The risk is that currency market moves erase those profits.

The pound declined for a third day against the yen and the dollar as the number of people in the U.K. receiving jobless benefits rose by 81,000 in December, the most since March 1991, according to a Bloomberg News survey of economists. The Office for National Statistics will release the data at 9:30 a.m. in London today.

The trend for the pound versus the dollar is “clearly” down, Citigroup Inc.’s New York-based Tom Fitzpatrick and London- based Shyam Devani wrote in a research note to clients yesterday. A “firm breach” of $1.3682, a level last touched in June 2001, will allow the pound to decline to $1.3045, which would be the lowest level since 1985, according to the analysts, who use charts to predict currency moves.

Germany’s Producer Prices

The Bank of England will likely lower its benchmark rate by a half-percentage point to 1 percent at its Feb. 5 meeting, according to a separate Bloomberg survey.

Europe’s single currency fell for a third day versus the yen and the dollar as Germany’s producer prices fell 1.2 percent in December, after a 1.5 percent decline in November, another Bloomberg survey shows. The Federal Statistics Office will publish the report at 8 a.m. in Wiesbaden today.

The euro also weakened as Belgian Finance Minister Didier Reynders is seeking a second round of government intervention to aid banks in difficulties, news agency Belga quoted him as saying in an interview yesterday.

“Worries over the European economies and their financial sectors are weighing on the euro,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG. “The slide in the euro seems to be accelerating.”

The euro may decline to $1.2845 and 115.30 yen today, Muramatsu said.

Investors increased bets that the ECB will cut rates further. The yield on the three-month Euribor interest rate futures contract due in March fell to 1.255 percent yesterday from 1.33 percent on Jan. 19.