BLBG: Yen, Dollar Fall as U.S. Bank Bailouts Reduce Demand for Havens
The yen dropped the most in eight weeks against the euro while the dollar declined as measures to stabilize banks reduced demand for the currencies as havens.
Japan’s currency weakened almost 3 percent versus the Australian and New Zealand dollars as the U.S. government agreed to provide $138 billion of funds and guarantees to Bank of America Corp., encouraging investors to sell the yen and buy higher-yielding assets. A gauge of the dollar against the currencies of six U.S. trading partners fell the most in a week.
“Risk appetite is coming back,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. “The market was very bearish going into the week. When you have a piece of good news to surprise the market, it’s enough to squeeze the long-yen, long-dollar positions.” A long is a bet that a currency will appreciate.
The yen weakened as much as 2.4 percent to 120.72 per euro, the biggest intraday decline since Dec. 18, before trading at 120.46 at 9:18 a.m. in New York, compared with 117.87 yesterday. The U.S. currency slid 1.6 percent to $1.3325 per euro from $1.3115. The dollar rose 0.6 percent to 90.39 yen from 89.84.
The decline in Japan’s currency today pared this week’s gain versus the euro to 1.2 percent and erased the advance against the dollar.
Investors should “fade the rally” in higher-yielding currencies versus the yen as there’s still “shock in the system,” said Galy.
Russia’s ruble slid to a record of 32.6675 per dollar after the central bank accelerated its devaluation of the currency to stem the drain on its foreign-exchange reserves.
Rising Stocks
Against the Australian dollar, the yen slipped to 60.75 from 59.55. Japan’s currency also fell to 49.36 versus New Zealand’s dollar from 48.28. It weakened to 9.1136 per South African rand from 8.9936. Benchmark interest rates are 4.25 percent in Australia, 5 percent in New Zealand, 11.5 percent in South Africa and 0.1 percent in Japan.
The MSCI World Index rallied 1.5 percent. Standard & Poor’s 500 Index futures advanced 1.3 percent.
“Sentiment has improved on this news, but previous bouts of bailouts haven’t led to sustained confidence in the outlook,” Emma Lawson, a currency strategist in London at Merrill Lynch & Co., wrote in a report today. “Markets are likely to fade the enthusiasm.”
The yen advanced to 113.64 per euro on Oct. 27, the strongest since 2002, as coordinated rate cuts by major central banks on Oct. 8 and financial-system bailouts in the U.S. and Europe failed to revive stock markets.
Weaker Dollar
The U.S. dollar declined 3 percent versus Norway’s krone and fell 2 percent against the pound as investors sold relatively risk-free Treasuries. The ICE’s Dollar Index fell as much as 1.2 percent to 83.46, the biggest intraday drop since Jan. 8.
The U.S. government agreed to invest in Bank of America to stabilize the company, the Treasury, Federal Reserve and Federal Deposit Insurance Corp. said in a joint e-mailed statement before the bank’s quarterly earnings report today.
The yen remained lower even as Bank of America, the largest U.S. bank by assets, posted its first loss since 1991 and Citigroup Inc. reported an $8.29 billion fourth-quarter loss.
Fed officials are focusing on the option of setting up a so-called bad bank that would acquire hundreds of billions of dollars of troubled securities now held by lenders, according to people who’ve discussed the financial outlook with advisers to U.S. President-elect Barack Obama, who takes office Jan. 20.
Weekly Euro
The euro fell 1.6 percent against the dollar this week and headed for the third weekly loss, its longest losing streak in almost two months, after European Central Bank President Jean- Claude Trichet signaled he may cut interest rates further.
The ECB isn’t planning to cut borrowing costs to zero, Trichet said in an interview with Japanese public broadcaster NHK. The central bank lowered its main refinancing rate yesterday by a half-percentage point to 2 percent, matching a record low. The benchmark compares with 1.5 percent in the U.K. and a range of zero to 0.25 percent in the U.S.
The dollar may extend gains versus the yen on speculation overseas investors are seeking the relative safety of Treasuries as an economic slowdown spreads across the world, according to strategists.
International demand for long-term U.S. financial assets fell in November as foreign investors sold Treasury, agency and corporate debt, a government report showed.
Total net sales of long-term equities, notes and bonds totaled $21.7 billion, compared with selling of a revised $400 million in October, the Treasury said today in Washington. Including short-term securities such as stock swaps, foreigners bought a net $56.8 billion, compared with net buying of $260.6 the previous month.
