BLBG: Yen, Dollar Gain as U.S. Carmakers’ Outlook Spurs Safety Demand
The yen and dollar rose against all of the other major currencies as a U.S. government official said bankruptcy may be the best option for General Motors Corp. and Chrysler LLC, spurring investors to take refuge.
Japan’s currency climbed to the highest level versus the euro in two weeks as global stocks fell on concern the global recession will lead to further losses in the financial industry. U.S. Treasury Secretary Timothy Geithner said yesterday some financial institutions will need “large amounts” of aid.
“We’re still looking for the dollar to do better and the euro to sell off,” said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut. “Everything is back again with GM and Chrysler.”
The yen advanced 1.5 percent to 128.03 per euro at 11:58 a.m. in New York, from 130.04 on March 27. It reached 126.42, the strongest level since March 16. A two-day gain of 4.7 percent was the biggest since Jan. 12. The yen appreciated 0.5 percent to 97.37 per dollar from 97.86. The dollar strengthened 1.1 percent to $1.3147 per euro from $1.3287.
The dollar was headed for a 6 percent gain against the euro in the first three months of the year, its fourth quarterly increase and the longest stretch of advance since December 2005. The greenback climbed 6.9 percent versus the yen, the second- best performance among major currencies tracked by Bloomberg.
Norway’s krone was the best performer versus the yen and the only gainer versus the greenback in the first quarter among most actively traded currencies on higher crude oil prices, rising 8.8 percent to 14.18 yen and 1.7 percent to 6.8355 versus the dollar. Norway is the world’s fifth-largest oil producer,
ECB’s Outlook
The euro fell against the dollar for a third day on speculation the European Central Bank will cut the main refinancing rate on April 2 by a half-percentage point to 1 percent, the lowest since the currency’s introduction in 1999.
Europe’s currency also dropped on speculation policy makers may be forced to follow the Federal Reserve and the Bank of England in adopting unconventional monetary policy measures such as printing money as interest rates approach zero. Leaders from the Group of 20 emerging and developed nations will meet in London on the day of the ECB’s decision to try to forge a common response to the global financial crisis.
The Dollar Index rose today after an official in President Barack Obama’s administration who declined to be identified said GM and Chrysler must overhaul their recovery plans with deeper concessions to justify further taxpayer cash, increasing demand for the world’s main reserve currency. Obama said at the White House today the companies must survive without becoming “wards of the state” and have one last, limited chance to “fundamentally restructure.”
‘News Flow’
“After a few weeks of mostly positive news flow, it changed quite dramatically during the weekend,” said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto. “It’s clear that the currencies are reflecting the return of risk aversion, and that return has been quite significant.”
The gauge of the greenback, which the ICE uses to track the currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, climbed 0.9 percent to 85.84 after reaching 85.99, the highest level since March 18. The MSCI World Index slid 3.7 percent, and the Standard & Poor’s 500 Index dropped 3.5 percent.
The yen increased 4 percent to 14.33 South Korean won and 2.8 percent to 66.07 versus the Australian dollar on speculation the drop in stocks will discourage Japanese investors from buying higher-yielding assets overseas.
Outlook for Yen
The currency is likely to fall to its lowest level against the dollar in more than five months as Japan’s recession deepens and the appeal of the currency wanes, Goldman Sachs Group Inc. said, reiterating a forecast it made on March 11.
The yen will probably weaken because of factors including the plunge in the nation’s exports and Japanese investors’ purchases of foreign securities, Fiona Lake, a Hong Kong-based economist at Goldman Sachs, wrote in a note today. The yen’s “fair value” versus the dollar is 114, indicating the currency is “overvalued,” wrote Lake, who predicted the dollar will rise to 105 yen in three months.
Geithner said yesterday in an interview on ABC-TV’s “This Week” that a plan to shore up the nation’s banks with a public-private partnership to finance the purchase of illiquid real-estate assets will ensure banks emerge from the crisis “cleaner” and “stronger.”
The plan to remove distressed assets from bank balance sheets through public-private partnerships and the Term Asset- Backed Securities Loan Facility, or TALF, will help to bring the financial crisis to its final stage, according to Credit Suisse Group AG.
“The Geithner plan, unlike previous plans, puts us into the ninth inning of the financial crisis,” wrote Credit Suisse analysts Dominic Konstam and Carl Lantz in a note to clients.
