The yen rose against the euro as stocks snapped three days of gains, spurring demand for Japan’s currency as a refuge from the global financial turmoil. The yen strengthened the most in four days against the European currency on speculation Japanese exporters brought home overseas earnings after it reached an eight-week high. The euro weakened following a report showing Europe’s jobless rate climbed to the highest level in almost 10 years, giving policy makers more reason to cut interest rates or expand asset purchases when they meet this week. “Equities are pausing for thought, boosting the risk currencies,” said Paul Robson, a foreign-exchange strategist in London at Royal Bank of Scotland Plc. “If U.S. equity markets open higher then the risk trade will be back on.” The yen strengthened 0.6 percent to 135.93 per euro as of 10:55 a.m. in London from 136.78 yesterday in New York when it fell to 137.24, the weakest since April 6. The dollar was at $1.4169 per euro, from $1.4159 yesterday, when it depreciated to $1.4246, the weakest this year. The yen strengthened to 95.98 per dollar from 96.59. New Zealand’s currency slipped 0.4 percent to 64.78 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. Robson recommended selling the Australian dollar against the New Zealand dollar and the Canadian dollar versus the Norwegian krone. Stock Indexes The MCSI World Index of shares fell 0.1 percent and the Dow Jones Stoxx 600 Index of European shares declined 0.1 percent. Futures on the Standard & Poor’s 500 Index of U.S. shares was 0.1 percent higher. 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 79.162. It dropped to 78.586 yesterday, the lowest this year. The gauge has fallen 11 percent from its high this year in March. The dollar is tracking changes in the London interbank offered rate, or Libor, after its relationship broke with 10- year Treasury yields, Goldman Sachs Group Inc. said in a research report yesterday. “When comparing the performance of the trade-weighted dollar in the last few months with the evolution of the 12-month Libor rate, both appear to perfectly match each other,” Thomas Stolper, a global markets economist at Goldman Sachs in London, wrote in a report yesterday. The “normalization” of Libor means that it more closely reflects monetary policy, he said. Treasury Issuance The dollar stopped tracking 10-year yields because “supply factors due to the heavy issuance schedule of U.S. Treasuries may have distorted the term structure in a way that no longer reflected the likely path of monetary policy,” Stolper wrote. The Dollar Index fell 8.4 percent since April 20, when it reached a one-month high. Libor for 12-month loans in dollars dropped 35 basis points, or 0.35 percentage point, to 1.59 percent in the period. The euro’s gains versus the yen left it at a “good” level for exporters, 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. “That kind of flow may cap the downside to the yen,” he said. Short-term traders who were betting the yen would fall may have also decided it’s time to close their positions, he said. Pound Gains Stall The pound snapped a two-day gain against the dollar, dropping 0.6 percent to $1.6348, as traders judged its advance to a seven-month high was excessive given the prospects for U.K. economic growth and corporate earnings. Britain’s currency also weakened 0.4 percent versus the euro to 86.47 pence as the FTSE 100 index of stocks fell 0.7 percent. The benchmark measure of U.K. equities slipped from its strongest in almost five months as Barclays Plc lost 13 percent after Abu Dhabi investors sold 4.1 billion pounds ($6.8 billion) worth of the lender’s shares. The euro fell after Europe’s unemployment rate jumped to 9.2 percent in April, from 8.9 percent the previous month, more than the 9.1 percent predicted by the median estimate in a Bloomberg News survey of economists. Signs that the 16-nation economy won’t recover from the recession any time soon will give the European Central Bank more cause to reduce the main refinancing rate when it meets in two days’ time, said Satoru Ogasawara at Credit Suisse Group AG. ‘Further Weakness’ “The anticipation of further easing by the ECB will increase,” said Ogasawara, a foreign-exchange analyst and economist in Tokyo at Credit Suisse Group, 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.” ECB President Jean-Claude Trichet said last month it would buy 60 billion euros 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 rate unchanged at 1 percent on June 4, according to a Bloomberg survey. “This week’s ECB meeting is unlikely to bring new arguments to be bullish on the euro,” said Michael Klawitter, a currency strategist in Frankfurt at Commerzbank AG. “The discussion about quantitative easing will continue.” Dollar Oversold The dollar is oversold against the currencies of its major trading partners, according to the Dollar Index’s relative strength index, which was below 30 for a third day. 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 levels 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. China’s former central bank adviser Yu Yongding, while acting as the interviewer for the China Daily newspaper, told U.S. Treasury Secretary Timothy Geithner today: “I worry about details. We will be watching you very carefully.” Yu said yesterday he planned to tell Geithner that the U.S. shouldn’t be complacent about Chinese demand for Treasuries. China is the largest foreign holder of Treasuries, with $767.9 billion at the end of the first quarter, according to data compiled by Bloomberg. ‘Lot of Confidence’ “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. “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.”

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