The dollar fell against the yen on Wednesday due to selling by Japanese investors, while sterling hit a record low against the euro on expectations that the Bank of England will cut interest rates later this week.
Earlier, the dollar briefly rose near a one-month high against the yen, getting a lift from reports that Citigroup Inc was close to a sale of leveraged loans and bonds to a group of private equity firms. But its rise ran out of steam as Japanese exporters and life insurers stepped in to sell the dollar, traders said. "If the deal goes through, that would improve Citigroup's balance sheet," said Akira Kato, senior manager for the Bank of Tokyo-Mitsubishi UFJ's foreign exchange trading department.
"However, it is still not something that has been finalised," Kato said. People familiar with the situation said on Tuesday that Citigroup, the largest US bank, was close to selling about $12 billion of leveraged loans and bonds to private equity firms including Apollo Group, Blackstone Group LP and TPG.
Citigroup, Apollo, Blackstone and TPG declined to comment. The dollar fell 0.2 percent to 102.36 yen It earlier rose as high as 102.84 yen on electronic trading platform EBS, nearing a one-month high of 102.95 yen struck last week.
The euro was steady at $1.5705. The euro fell 0.1 percent against the yen to 160.76 yen retreating from a three-month high of 161.75 yen hit on Tuesday. The yen showed little reaction after Japan's upper house of parliament approved acting Bank of Japan Governor Masaaki Shirakawa as the central bank's permanent head, while voting down the government's candidate for deputy governor, former finance ministry official Hiroshi Watanabe.
"Even if the BoJ governor changes, it does not mean there will be any change in Japan's foreign exchange policy," said Bank of Tokyo-Mitsubishi UFJ's Kato, noting that the Ministry of Finance is in charge of currency policy. Despite some recent signs of stabilisation, concerns about the fallout from the credit market turmoil were likely to linger ahead of quarterly earnings announcements by US banks later this month, traders said.
The International Monetary Fund said on Tuesday that turmoil in credit markets could spread with losses possibly approaching $1 trillion. Sterling dropped to a record low against the euro for a second straight day, falling to as low as 79.94 pence against the euro on Wednesday.
Sterling fell 0.1 percent to $1.9660 stuck near an intraday low of $1.9650, the lowest since late February. The pound extended losses after Halifax, the nation's largest mortgage lender, said on Tuesday that house prices in Britain fell 2.5 percent in March, their sharpest monthly decline since September 1992.
The weak British housing data supported a market consensus for the Bank of England to lower interest rates by 25 basis points to 5.0 percent when its Monetary Policy Committee announces its decision on Thursday.