The dollar and yen continue to gain against rivals on the rise in global market volatility - despite the specter of foreign exchange market intervention.
The more volatile financial markets, the more investors repatriate back into safer, more liquid assets. However, the dollar did not drop to new lows against the yen after hitting a 13-year low of Y90.87 Friday.
While September new home sales report will be released at 10 a.m. EDT Monday, traders are likely more focused on the upcoming Federal Open Market Committee meeting on Wednesday and the potential for some coordinated action.
Monday morning in New York, the euro was at $1.2450 from $1.2609 late Friday, while the dollar was at Y92.96 from Y94.69, according to EBS. The euro was at Y115.77 from Y119.31. The U.K. pound was at $1.5423 from $1.5890, and the dollar was at CHF1.1585 from CHF1.1680 Friday.
Overnight, during the Asian trading session, finance chiefs from the Group of Seven leading nations issued an emergency statement warning investors against pushing up the yen too much, partly in response to Japan's pleas for help.
In the three-sentence remark, the G7 singled out the yen for the first time in a statement since January 2000.
"We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," it said. "We continue to monitor markets closely, and cooperate as appropriate."
Credit Suisse analysts note: "The statement basically gives Japan more cover to intervene in dollar versus yen without having to seem as if it is acting out of step with the other major economies."
On the same token, they also point out that a statement could be a sign of reluctance from other G7 partners to actually join in a Japanese intervention.
Either way, while an intervention could certainly set back the yen in the short term, it will be short lived in the current environment, they said.
For instance, the drop in oil prices has left many oil importers over-hedged on their yen sales, said Tohru Sasaki, an analyst at JPMorgan Chase Bank in Tokyo.
"According to our calculations based on the (Ministry of Finance's) data on trade volumes, oil importers could be overhedged to the tune of $4.6 billion by the end of this month and $4.8 billion by the end of November (assuming the oil price stays at its current $61 per barrel)," he said.
Other analysts also point to a larger wave of hedge fund redemptions to come, which would supportthe dollar.
Meanwhile, the German Ifo business climate index fell for the fifth consecutive month in October, hitting its lowest level since May 2003, reinforcing expectations for a euro-zone recession and the decline in the euro.
Elsewhere, as markets debate the possibility of foreign exchange intervention in Japan, the Reserve Bank of Australia intervened Monday after doing the same Friday.
A spokesman for the RBA told Dow Jones Newswires the intervention, the first since August 2007, was aimed at adding "liquidity in an illiquid market."
Still, the Australian dollar remains near five-year lows.
Also, the International Monetary Fund is stepping in to boost financial markets. It unveiled Sunday its second national rescue plan, this time $16.5 billion for Ukraine. The announcement follows Friday's $2.1 billion loan to Iceland. The IMF also said that a "substantial financing package" would be announced for Hungary in the next few days.