The yen and the dollar rose versus the euro after the Federal Reserve declined to provide more information about buying Treasuries to help support the economy, boosting demand for the currencies as havens. New Zealand’s dollar declined to a six-year low after the country’s central bank cut the official cash rate more than most forecast. Russia’s ruble had its biggest two-day drop in a decade against the dollar. “The Fed was a bit more cautious than people expected and the dollar rose accordingly,” said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp., the world’s biggest custodian of financial assets. “The world is going to have to get used to a stronger yen.” The yen strengthened 0.7 to 118.05 per euro at 8:18 a.m. in New York, from 118.88 yesterday. The euro lost as much as 1.1 percent versus the dollar, the biggest intraday decline since Jan. 23, and was at $1.3117, compared with $1.3166 yesterday. The yen gained 0.3 percent to 90.04 per dollar, from 90.26 yesterday, when it weakened to a one-week low of 90.75. Japan’s currency may trade between 85 and 90 per dollar and about 115 to the euro this quarter, Mellor said. New Zealand’s dollar dropped as much as 2.2 percent to 51.28 U.S. cents, the lowest level since December 2002. The Reserve Bank cut its official cash rate by 1.5 percentage points to a record low of 3.5 percent. Standard & Poor’s 500 Index futures fell 1.3 percent, and Europe’s Dow Jones Stoxx 600 Index lost 1.3 percent. ‘Risk Aversion’ “We continue to expect a return to risk aversion to lead to a stronger dollar and yen,” analysts led by David Woo of Barclays Plc wrote in a research note today. “We maintain our view that it will be difficult for equities to rally while bad assets remain on banks’ balance sheets.” The Federal Reserve said yesterday it’s prepared to purchase Treasury securities to resuscitate lending and warned inflation may recede too quickly. The central bank is “prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets,” the Federal Open Market Committee said in a statement after meeting in Washington yesterday. The Fed last cut its target lending rate Dec. 16 and shifted its focus to the amount and type of debt it buys, seeking to revive credit markets after financial institutions worldwide posted $1 trillion in losses on mortgage-related securities since the start of 2007. Mortgage Securities Policy makers began a $500 billion program this month to buy Fannie Mae, Freddie Mac and Ginnie Mae mortgage securities, pushing down the yields on mortgage bonds relative to Treasuries. The Fed kept the target rate for overnight loans between banks in a range of zero to 0.25 percent yesterday. European Central Bank President Jean-Claude Trichet said yesterday in an interview on Bloomberg Television at the World Economic Forum in Davos, Switzerland, before the Fed’s decision that “very, very low” interest rates “have some inconveniences.” Trichet reiterated that the ECB’s next important meeting is in March, signaling policy makers won’t cut interest rates next week. The central bank lowered its benchmark rate on Jan. 15 by a half-percentage point to 2 percent, matching a record low. European Sentiment The euro remained lower versus the dollar after the European Commission said its index of executive and consumer sentiment declined to a record low in January. The index fell to 68.9, the lowest level since it was started in 1985, from a revised 70.4 in December. The ruble depreciated 3 percent to 34.9134 per dollar, bringing its loss the past two days to 5.6 percent, the most since March 1999, as investors speculated the central bank will be forced to widen its target trading band. Bank Rossii drained about 35 percent of its foreign reserves defending the currency since mid-August.

Source