The euro was sitting comfortably above $0.90 in Tokyo Thursday, December 21, as the yen took a beating on a slump by Tokyo share prices.
Fears that the wheels are coming off the US economic juggernaut have helped the euro overcome resistance at $0.90, after it failed to break the level convincingly earlier this week.
The euro bought $0.9086 around 2:00 pm (0500 GMT), down slightly from $0.9093 late in New York but up sharply from $0.8955-58 in Tokyo late Wednesday.
"Investors are buying the euro as they think the United States will lower its interest rates in the near future while Europe, on the other hand, might raise its rates," said Fuji Bank dealer Hideyuki Tsukamoto.
"Investors are selling the yen as they think the Japanese economic outlook is even more unclear than that of the United States," he said.
"In terms of economic fundamentals, the euro is now the strongest, followed by the dollar and then the yen."
The European single currency traded at 102.66 yen, well up from 101.09 yen in Tokyo Wednesday.
One dollar was worth 112.96-98 yen, up from 112.63-73 yen in New York and 112.85-88 yen in Tokyo late Wednesday.
"The dollar is down against other currencies but up against the yen after the Nikkei plunged this morning," Sanwa Bank dealer Mitsuru Sahara said.
The Tokyo Stock Exchange's Nikkei-225 index slumped 267.86 points, or 1.9 percent, to end Thursday morning at 13,646.57.
Gloom has descended on Japan's financial markets as evidence mounts that the tentative recovery under way in the world's second-biggest economy is going into reverse.
"Investors have no incentive to buy the yen," Sahara said.
"European stock prices have fallen only a little, while the region's interest rates are set to go up," he added.
"Some investors think the US economy might suffer a hard landing instead of a soft one, and the interest rate cut in January that the market is expecting might not be enough."
The currency trends represent a complete reversal of fortunes for the euro, which had been falling against the dollar ever since its launch in January last year.
But the Federal Reserve, after keeping US interest rates unchanged this week, is now expected to act next month to fix the spluttering US economy while Europe in contrast heads for solid economic growth.
"If the Fed is going to deal with this negative psychology, then they will have to deliver a positive surprise," said research firm IDEAglobal.com in Singapore.
The US central bank could do this either by cutting rates before its next January meeting, or by easing monetary policy then and following up with further rate cuts in quick succession, it said.— (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)
