The yen fell to a five-week low against the euro, and the dollar weakened, before reports that economists said will show German producer prices rose and U.S. consumer confidence improved, damping demand for safer assets. Japan’s currency headed for a weekly loss against all of its 16 major counterparts after the nation took action to weaken the yen and pledged to do so again if needed to preserve its export-led recovery. Australia’s dollar rose toward the strongest since July 2008 as stock gains boosted demand for higher-yielding assets. The Swiss franc was poised for its biggest weekly drop in four months versus the euro after the central bank cut its forecast for inflation. “The U.S. economy is looking better,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s largest interdealer broker. “Europe is doing much better. The euro will be a beneficiary. I’ve been fairly bearish on the yen.” The yen fell to 112.63 per euro as of 6:40 a.m. in London from 112.18 yesterday in New York, after sliding to 112.70, the weakest since Aug. 10. Japan’s currency was at 85.73 per dollar from 85.78, having slid 1.8 percent this week. The dollar declined to $1.3138 per euro from $1.3078, after touching $1.3139, the weakest since Aug. 11. Australia’s dollar gained 0.8 percent to 94.45 U.S. cents, and rose 0.7 percent to 80.95 yen. The franc traded at 1.3326 per euro from 1.3286, headed for a 3 percent weekly loss, the most since the period ended May 21. Growth Signs German producer prices rose 0.3 percent in August from July, when they climbed 0.5 percent, according to a Bloomberg survey of economists before the report today. The Thomson Reuters/University of Michigan preliminary index of U.S. consumer sentiment rose to 70 in September from 68.9 in August, another Bloomberg survey showed before today’s data. The MSCI Asia Pacific Index of shares rose 1.1 percent. The VIX Index, a measure of market volatility dropped 1.7 percent to 21.72 yesterday, indicating traders are becoming more confident about stock gains. “Price action since yesterday’s London close has been distinctly ‘risk-on,’” Sue Trinh, a senior currency strategist in Hong Kong at RBC Capital Markets, wrote in a note today. “The dollar, the yen and the franc are the biggest losers as can be expected in that environment.” The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, declined to 80.963 from 81.241 yesterday, after touching 80.958, the weakest since Aug. 11. Australian Dollar The Australian dollar extended a fifth week of gains as optimism over the global recovery boosted assets tied to growth. “Worries about a double-dip recession are weakening,” said Hiroshi Yanagisawa, a dealer in Tokyo at FX Prime Corp., a foreign-exchange unit of Itochu Corp. “This will encourage a shift in fund allocation back into higher-yield assets” such as the Australian dollar. Japan unilaterally sold the yen this week after the currency climbed to 82.88 per dollar, the strongest since May 1995. Finance Minister Yoshihiko Noda said today the government will continue to intervene if necessary, and said the policy was aimed at containing volatility. The government’s first intervention to weaken its currency since 2004 and the prospects of renewed asset purchases by the Federal Reserve are expected to have “significant implications” for the global investment environment beyond the dollar and the yen, according to BNP Paribas SA. BOJ Deposits “The Japanese intervention could form part of a broader quantitative-easing policy, adding to global liquidity and supporting investor risk appetite,” analysts led by Hans- Guenter Redeker, London-based global head of currency strategy at BNP, wrote in a note yesterday. “We anticipate the Fed announcing quantitative easing II in November. We have adjusted our foreign-exchange forecasts.” BNP Paribas now predicts the dollar will weaken to $1.34 per euro and to 82 yen by year-end, compared with previous forecasts of $1.15 and 88 yen, respectively. BNP projects the Australian dollar will rise to $1.02 by Dec. 31, versus a prior prediction of 90 U.S. cents. The franc fell to a one-month low versus the euro yesterday after the central bank kept interest rates near zero and said it is in no rush to raise borrowing costs. The SNB left the three-month Libor target rate at 0.25 percent, and cut its inflation prediction for 2010 to 0.7 percent from 0.9 percent. “The inflation forecast has been revised down over the entire forecast horizon and the meeting marked a sharp reversal from the June statement, when it appeared that monetary tightening was imminent,” Brian Kim, a currency strategist in Stamford, Connecticut, at UBS AG, wrote in a note yesterday. “It seems likely the franc will continue to suffer from the realization that rate hikes are unlikely for the time being.” To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net.

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