July 31, 2007	Tuesday	Rajab 15, 1428

LONDON, July 30: The yen remained firm against high-yielding currencies on Monday as investors opted out of risky assets, while the pound suffered from rising expectations that British interest rates might not rise any further.

In late European trading, the euro advanced to $1.3680, compared with $1.3632 late on Friday in New York.

The dollar slipped to 118.42 yen from 118.60 yen late on Friday.

Increased aversion to risk amid worries that problems in the US real-estate lending sector were spreading into other areas and could spawn a global credit crunch has led investors to unwind so-called carry trades.

They are a risky strategy that involve borrowing in low-yielding currencies such as the yen to invest in higher-yielding assets elsewhere, and had been highly popular until last week.

“Selling in the high yielding currencies Australian dollar, sterling, and New Zealand dollar accelerates ... amid prolonged declines in global risk appetite, leaving the yen as the broad winner against most currencies,” said Ashraf Laidi at CMC Markets.

The continued unwinding of carry trades has caused the Australian and New Zealand dollars to slump to two-month lows against the yen.

Laidi noted that the US dollar was “getting a respite” after recent sharp losses against high-yielding currencies, although it had weakened significantly against the yen.

Trade was choppy, however, with bouts of yen buying broken up from time to time as opportunistic sellers took advantage of the currency’s rise.

“People are looking for opportunities to get back in (to sell the yen),” said Standard Chartered analyst Marios Maratheftis.

He added, however, that while he believed carry trades would resume, there were no signs as yet that the current bout of risk aversion was ending.

Meanwhile, growing expectations that there might be no more interest rate hikes in Britain or New Zealand put additional pressure on the pound and the New Zealand dollar.

There is a “rising consensus” that the Reserve Bank of New Zealand has concluded its rate hike campaign, while in Britain, the latest Hometrack survey gave further evidence that increases in borrowing costs were weighing on the housing market.The survey showed that house price growth in England and Wales ground to a near standstill in July, increasing by just 0.1 per cent from the previous month and sparking talk that the Bank of England might not raise interest rates beyond their current level of 5.75 per cent.

“Further evidence of a peak in UK home price growth is adding to the broad sell-off in sterling as it raises speculation on the end to the Bank of England’s 12-month tightening campaign,” Laidi said.

Meanwhile, the euro gained against the dollar and high-yielding currencies, helped by expectations of at least one more interest rate rise from the European Central Bank.

“The euro has stabilised losses against the dollar, while extending gains versus the pound as traders expect at least one more rate hike to 4.25 per cent from the ECB at a time when the UK interest rates are seen peaking at 5.75 per cent,” Laidi said.

On the London Bullion Market, the price of gold firmed to $661.50 per ounce from $660.50 late on Friday.—AFP