The yen rose against all of the other major currencies after a government report showed a slump in Japan’s exports slowed in March, adding to signs the worst of the recession may be over. The pound fell against the dollar and euro as Britain’s deficit deepened, unemployment increased and Chancellor of the Exchequer Alistair Darling said the worst U.K. slump since World War II will sap revenue. The Australian dollar weakened against the greenback as annual inflation slowed, giving the central bank more room to lower interest rates. “The focus was on yen outperformance,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “The downward spiral of trade starts to abate here.” The yen climbed 1.1 percent to 126.35 per euro at 9:04 a.m. in New York, from 127.81 yesterday, when it reached 126.09, the strongest level since March 16. Japan’s currency advanced 0.9 percent to 97.83 per dollar, from 98.73. The dollar was little changed at $1.2949 per euro, compared with $1.2948. It earlier appreciated to $1.2886, the strongest level since March 16. Japan’s currency traded near a five-week high versus the euro after a government report showed the nation’s overseas shipments fell 45.6 percent from a year earlier, compared with February’s unprecedented 49.4 percent plunge. Economists predicted a 46.4 percent drop. The pound fell 1.5 percent to $1.4450 as Darling told Parliament in London today that the U.K. economy will shrink by 3.5 percent this year, more than twice the estimate in November. Britain’s Unemployment U.K. unemployment rose 177,000 in the three months through February to 2.1 million, the most since Prime Minister Gordon Brown’s Labour Party came to power in 1997, according to the Office for National Statistics. The deficit almost tripled to 90 billion pounds ($117 billion) in the fiscal year through March, the statistics office said. The dollar fell yesterday against the euro after Treasury Secretary Timothy Geithner told a congressional panel the “vast majority” of U.S. banks have more capital than needed, reducing demand for the safety of the world’s main reserve currency. He said there are signs credit markets are “thawing.” The Federal Reserve plans to release results of stress tests on banks on May 4. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the recession worsen. Worldwide losses tied to loans and securitized assets may reach $4.1 trillion by the end of 2010 as the recession and the credit crisis exact an increasing toll on financial institutions, the International Monetary Fund said yesterday. ‘Gloomy Prognosis’ “The IMF’s gloomy prognosis is an added factor helping to define the risk appetite environment,” Steve Pearson, a London- based currency strategist at Bank of America-Merrill Lynch, wrote in a note today. “This is leaving foreign-exchange price action biased toward dollar and yen outperformance.” Australia’s dollar weakened 1.1 percent to 70.33 U.S. cents and 2.1 percent 68.78 yen after a report showed the nation’s inflation rate slowed to an 18-month low, giving policy makers more room to cut the 3 percent target lending rate. “With inflation working lower, they would be able to keep interest rates at low levels for a prolonged period,” said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. “We are penciling in at least one more rate cut.” Australia’s consumer price index rose 2.5 percent in the first quarter from a year earlier, after gaining 3.7 percent in the fourth quarter, the Bureau of Statistics said in Sydney. The euro touched a one-month low against the dollar on speculation disagreement remains among European Central Bank policy makers on the recession. ECB ‘Disparity’ “The anxiety about disparity on policy action among ECB policy makers is still strong,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “This may continue to outweigh the impact of yesterday’s better-than-expected ZEW survey.” The ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations increased this month to 13 from minus 3.5 in March. That’s the highest since June 2007 and the first positive reading since July 2007. The median forecast of 35 economists surveyed by Bloomberg was for a gain to 2. The Canadian dollar fell 0.7 percent to C$1.2445 per U.S. dollar before the Bank of Canada publishes guidelines for possible quantitative easing tomorrow. The central bank cut its target interest rate to a record low of 0.25 percent yesterday and said it plans to leave it there for more than a year.

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