BLBG: Yen, Dollar Fall as U.S. Bank Bailouts Reduce Demand for Havens
The yen dropped the most in a month against the euro while the dollar declined as measures to stabilize banks reduced demand for the currencies as havens.
Japan’s currency weakened against all of its major counterparts 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 120.24 at 10:31 a.m. in New York, compared with 117.87 yesterday. The dollar slid 0.9 percent to $1.3239 per euro from $1.3115. The dollar rose 1.2 percent to 90.89 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.
The ruble slid as much as 0.9 percent to 32.6675 per dollar, the weakest level since Russia redenominated the currency in 1998, after the central bank accelerated its devaluation to stem the drain on its foreign-exchange reserves. Bank Rossii devalued the currency for the fifth time in six days, a central bank official said, more than double the pace in November and December.
Yen Versus Aussie
The yen declined 2.2 percent to 60.90 against the Australian dollar, 2.4 percent to 49.44 versus New Zealand’s dollar and 0.9 percent to 9.1136 per South African rand on speculation investors will resume carry trades, in which they get funds in a country with low borrowing costs and buy higher- yielding assets elsewhere. Japan’s 0.1 percent target lending rate compares with 4.25 percent in Australia, 5 percent in New Zealand and 11.5 percent in South Africa.
The Standard & Poor’s 500 Index increased 1 percent, while the Dow Jones Stoxx 600 Index gained 2.5 percent. 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.
‘Bad Bank’
Fed officials are focusing on the option of setting up a “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. He takes office Jan. 20.
“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.
The U.S. dollar declined 2.5 percent to 6.9490 versus Norway’s krone and 2 percent to $1.4891 against the pound as Treasuries tumbled. The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell as much as 1.2 percent to 83.46, the biggest intraday drop since Jan. 8.
U.S. Assets
International demand for long-term U.S. financial assets Dropped 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 billion the previous month.
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, as European Central Bank President Jean- Claude Trichet signaled yesterday he may cut interest rates further after lowering the main refinancing rate 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 ECB isn’t planning to cut borrowing costs to zero, Trichet said in an interview with Japanese public broadcaster NHK.
