The yen strengthened against the euro on speculation Japanese exporters brought home overseas earnings after the European currency reached an eight-week high. The euro also weakened before a report today that may show the European jobless rate climbed to a four-year high, giving the central bank more reason to cut interest rates. The New Zealand dollar fell for the first time in four days against the U.S. currency on speculation its recent gains were too rapid after it surged last month by the most in 24 years. “The higher euro-yen level is good for exporters so that kind of flow may cap the downside to the yen,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader. “Some short-term traders who were long yen crosses may also” be concerned recent gains aren’t sustainable. The yen rose to 136.55 per euro as of 1:41 p.m. in Tokyo from 136.78 yesterday in New York when it fell to 137.24, the weakest since April 6. The yen gained to 96.38 per dollar from 96.59. The dollar traded at $1.4167 per euro from $1.4159 yesterday, when it declined to $1.4246, the weakest this year. New Zealand’s currency slipped 0.4 percent to 64.73 U.S. cents, after touching 65.65 cents yesterday, the strongest since Oct. 6. The currency has advanced 31 percent during the past three months. “We’ve had exhaustive moves on the topside and we need to have some sort of correction back,” said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. European Jobs Europe’s unemployment rate jumped to 9.1 percent in April, from 8.9 percent the prior month, according to the median estimate in a Bloomberg News survey of economists. “If the jobs data comes out as expected or worse, the anticipation of further easing by the ECB will increase,” said Satoru Ogasawara, a foreign-exchange analyst and economist in Tokyo at Credit Suisse Group AG, the largest Swiss bank by market value. “An expansion of measures such as buying corporate and government bonds would also lead to further weakness in the euro.” Investors maintained bets European policy makers will reduce their 1 percent benchmark at the June 4 meeting. The implied yield on the three-month Euribor futures contract for June delivery was 1.215 percent yesterday, from 1.24 percent a week ago. Quantitative Easing ECB President Jean-Claude Trichet said last month the bank would buy 60 billion euros ($85 billion) of covered bonds. The Federal Reserve, Bank of England and Bank of Japan are already purchasing government and corporate bonds in a policy known as quantitative easing, which is intended to keep borrowing costs low. The ECB will keep its benchmark unchanged at the meeting, according to a Bloomberg survey. The euro will struggle to break above $1.4184, said Forecast Pte in Singapore, citing trading patterns. “We may have some resistance at this level,” said Pak Lai Ng, a technical analyst at Forecast, referring to prices where sell orders may be clustered. The $1.4184 level is the 50 percent retracement of the decline from the July high of $1.6038 to the October low of $1.2330, said Ng, referring to a series of numbers known as the Fibonacci sequence. The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, was little changed at 79.103 from 79.153 yesterday, when it reached 78.586, the lowest this year. ‘Don’t Be Complacent’ Demand for the dollar may be limited after China’s former central bank adviser Yu Yongding said he will meet Treasury Secretary Timothy Geithner today and tell him the U.S. shouldn’t be complacent about China continuing to buy Treasuries. “I wish to tell the U.S. government: ‘Don’t be complacent and think there isn’t any alternative for China to buy your bills and bonds’,” Yu said in an interview yesterday. China is the largest foreign holder of U.S. Treasuries, with $767.9 billion at the end of the first quarter, according to data compiled by Bloomberg. “I’ve actually found a lot of confidence here in China, justifiable confidence, in the strength and resilience and dynamism of the American economy,” Geithner said in an interview in Beijing with Chinese state media today. The U.S. may borrow a record $3.25 trillion this fiscal year ending Sept. 30, almost four times the $892 billion in 2008, according to Goldman Sachs Group Inc. The U.S. budget deficit is projected to reach a record $1.75 trillion for the same fiscal year, according to the Congressional Budget Office. U.S. Budget Deficit “Heightening concern over foreigners’ willingness to fund the huge U.S. budget deficit has knocked ‘safe-haven’ demand for the U.S. dollar down significantly,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a research report. The euro’s rally against the dollar may be entering its “last stage,” and investors would likely benefit from selling the 16-nation currency against the greenback, UBS AG said. The euro is set to weaken toward $1.30, analysts led by Mansoor Mohi-uddin, Zurich-based chief currency strategist at the world’s second-biggest foreign-exchange trader, wrote in a note to clients yesterday. The analysts reiterated forecasts for the euro to trade at $1.40 in one month’s time and weaken to $1.30 in three months. “We remain positive on the U.S. dollar and think that the greenback is likely in its final stage of weakness,” the analysts wrote. “Equity and bond flows have the potential to surprise and could lend support to the dollar.”

Source