The yen gained versus the dollar, approaching the strongest level since World War II, as the Standard & Poor’s downgrade of the U.S. and concern Europe’s sovereign-debt crisis is worsening boosted demand for safety. The euro dropped the most against the yen in a month amid bets the debt crisis may spread to France, and French President Nicolas Sarkozy and German Chancellor Angela Merkel will meet next week. The franc plunged from record highs against the euro and the dollar after the Swiss National Bank said a temporary peg to the euro was possible to stem the franc’s gains. The credit-rating cut “set the tone heading out of the gates for the week,” said Joe Manimbo, a market analyst in Washington at Travelex Global Business Payments, a currency- exchange network. “That was really the catalyst for such a volatile week that we have witnessed. It’s predominantly the risk-off trade that has dominated the Japanese yen.” The yen gained 2.2 percent to 76.72 per dollar yesterday in New York, from 78.40 on Aug. 5. It reached 76.31 on Aug. 11, almost at the postwar high of 76.25 reached March 17. The Japanese currency climbed 2.4 percent to 109.30 per euro, the most since the week ended July 15, from 111.97 yen. The 17- nation currency slipped 0.2 percent to $1.4248, from $1.4282. The franc dropped 1.4 percent to 77.79 centimes per dollar, after reaching a record high of 70.71 centimes on Aug. 9. The Swiss currency slid 1.2 percent to 1.1086 per euro after touching a record 1.0075 on Aug. 9. Australia, New Zealand The currencies of Australia and New Zealand, which export commodities, fell versus the majority of their most-traded peers. New Zealand’s dollar weakened 1.3 percent to 83.22 U.S. cents, while the Australian dollar fell 0.8 percent to $1.0355. The franc and yen rose against all of their most-traded counterparts Aug. 8, the first day of trading after S&P downgraded the U.S. credit rating to AA+ from AAA on Aug. 5 after markets closed. The company said U.S. lawmakers failed to cut spending enough to reduce record budget deficits. Stocks dropped, with the S&P 500 Index plummeting 6.7 percent. S&P expects the dollar, “for lack of alternative, if no other reason,” to retain its reserve-currency role, John Chambers, chairman of the company’s sovereign-debt committee, said Aug. 8 in an conference call. The Swiss franc rallied versus the dollar the next day by the most since at least 1971, when Bloomberg records begin, climbing as much as 6.3 percent as investors sought refuge. Peg to Euro The franc plunged 6 percent versus the euro two days later in its biggest intraday loss since 1999, and fell 5.8 percent against the dollar, after Swiss National Bank Vice President Thomas Jordan indicated policy makers might peg the franc to the shared currency. A temporary peg is an option to help curb the franc’s rally, he told the newspaper Tages-Anzeiger. The dollar dropped after the Federal Reserve pledged Aug. 9 to keep its benchmark interest rate at a record low zero to 0.25 percent at least through mid-2013 to spur the economy. Policy makers said growth this year has been “considerably slower” than they anticipated. “The Fed clearly and very bluntly highlighted the weakness in the economy,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. The European Central Bank bought Spanish and Italian government bonds this week, according to traders familiar with the transactions, in an effort to keep the region’s debt crisis from spreading to the countries. The action helped lower Italy’s 10-year bond yield to 5.02 percent, from 6.4 percent Aug. 5, and cut Spain’s 10-year rate to 4.99 percent, from 6.46 on Aug. 2. Sarkozy, Merkel Sarkozy and Merkel will meet Aug. 16 in Paris to discuss economic governance of the euro region, according to statements from both leaders’ offices. France, Spain, Italy and Belgium imposed bans on short selling from yesterday to stabilize markets after European banks hit their lowest level since the credit crisis, the European Securities and Markets Authority said. A short is a bet an asset will decline. “If this ban is temporary and calms the markets and restores the credit markets, the euro will breathe a sigh of relief,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. Futures traders reversed their bets that the euro will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 8,273 on Aug. 9, compared with net longs of 1,763 a week earlier. Volatility Climbs Currency-market volatility hit the highest in 14 months. Implied volatility among currencies of Group of Seven nations reached 14.72 Aug. 11, a JPMorgan Chase & Co. index showed. The dollar fell yesterday versus the yen as the Thomson Reuters/University of Michigan preliminary index of consumer sentiment slumped to 54.9 this month, the lowest since 1980. Japanese Finance Minister Yoshihiko Noda told lawmakers this week the yen’s movements have continued to be one-sided even after the government sold the currency on Aug. 4 to curb its gains and protect Japan’s economy. The yen gained 2 percent over the past month versus the currencies of nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The franc rose 5.9 percent, while the dollar lost 1.6 percent. To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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