Yen gains in London

The yen gained against the dollar and euro on Thursday as worries about the cost of fiscal stimulus packages and whether they would succeed in limiting a global recession kept the low-yielding currency supported.
The dollar, normally a beneficiary of risk-averse sentiment, eased against a basket of major currencies as concern over the weak US economy and the impact of fiscal stimulus measures on the nation's balance sheet weighed. Major currencies were confined to tight ranges however and liquidity was lighter than usual due to the US Thanksgiving holiday.
Some dealers said attacks in Mumbai overnight which claimed over 100 lives heightened geopolitical fears, feeding into risk-reduction trades which benefited the yen. Traders also cited talk of repatriation flows from Japanese life insurers, giving a boost to the Japanese currency.
"Fundamentally the market is still thinking about risk aversion. We're not seeing any reasons for changes in the market paradigm and structure," UBS currency strategist Geoffrey Yu said. Real economy pain was never far away, with German data showing a 3-1/2 year labour market boom is fading as recession bites.
Germany is also set to tell the European Union it will record a budget deficit of 0.5 percent of gross domestic product (GDP) next year, and post a shortfall of 1.5 pct in 2010, a finance ministry source said. By 1500 GMT, the dollar had fallen 0.2 percent against the yen to 95.41, while the euro dropped 0.2 percent to 123.00 yen.
The euro was steady against the dollar at $1.2888, while the dollar dropped 0.1 percent versus a basket of currencies to 85.671. Currency movements were small, however, with most investors choosing to stay on the sidelines during the US holiday.
"We're seeing a market very much in a consolidation trading mode and the ranges are very similar to those seen recently," Brown Brothers Harriman currency analyst Audrey Childe-Freeman said. Investors were continuing to digest Tuesday's $800 billion stimulus plan in the US to support mortgage and other debt markets, as well as Europe's plan for a 200 billion euro package announced Wednesday.
The yield on 10-year US Treasury bonds fell on Wednesday below 3 percent to their lowest in half a century after another raft of dismal economic reports drew investor into bonds. But European shares gained 2 percent, following Wall Street and Asian markets overnight. The optimism from equity markets on the global fiscal and monetary steps to steer economies through the current storm failed to feed through into currency markets, however.