The dollar and the yen headed for their biggest monthly gains versus the euro since October as mounting evidence of a global slowdown increased the appeal of the currencies as a refuge from the financial crisis. The euro declined for a second day after reports indicated the slowest inflation in the 16-nation region since 1999 and the jobless rate at a two-year high. The yen rose against all of the major currencies, increasing more than 2 percent versus the Australian dollar and the Mexican peso. “Safe-haven currencies remain the way forward, and that’s benefiting the yen and the dollar,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International. “The underlying data continues to be biased to the downside, and investors are not buying into the recovery story.” The dollar advanced 1.1 percent to $1.2815 per euro at 7:23 a.m. in New York, from $1.2954 yesterday. The yen gained 1.3 percent to 115.12 versus the euro from 116.60. The dollar fell 0.2 percent to 89.82 yen from 90.03. Japan’s currency may strengthen to 87 per dollar and 110 against the euro in the next five weeks, Stretch said. The U.S. currency gained 8.5 percent versus the euro this month after a 4.4 percent rally in 2008. The yen advanced 10 percent in January against the euro after appreciating 29 percent last year. The greenback dropped 1.1 percent versus the yen this month after a 19 percent decline in 2008. The euro weakened against the euro and yen a day after billionaire investor George Soros told Austria’s Der Standard newspaper that it may not “survive” unless the European Union pushes for a global plan to deal with toxic debt. Soros’ Pound Exit Soros, who made $1 billion breaking the Bank of England’s defense of the pound in 1992, told reporters this week at the World Economic Forum in Davos, Switzerland, that he exited bets against sterling after it dropped to $1.40. The pound rose 1.1 percent to 89.61 pence per euro from 90.56 yesterday, extending its gain since Dec. 31 to 6.8 percent, the biggest monthly advance since the euro’s debut in 1999. Sterling was little changed at $1.4311, heading for a monthly loss of 1.9 percent. Europe’s inflation rate dropped to 1.1 percent in January, the lowest since July 1999, and the unemployment rate rose to 8 percent in December, the highest in two years. The yen rose 2.3 percent to 57.37 versus the Australian dollar and 2.1 percent to 8.83 against the rand today. Japan’s current-account surplus makes the yen attractive to investors in times of financial turmoil because it makes the country less reliant on capital markets. Yen Outlook The Japanese currency will probably extend gains through the end of the country’s fiscal year on March 31 as exporters buy it to hedge revenue and money managers bring funds home amid the global slump, according to Barclays Capital. “We like selling dollar-yen,” analysts led by Jim McCormick, London-based global head of foreign-exchange and local-markets strategy at Citigroup Inc., wrote in a research note yesterday. “Structural yen appreciation has yet to run its course as there remains scope for investors to unwind shorts.” A short position is a bet an asset will decline. Honda Motor Co., Japan’s second-largest automaker, slashed its full-year profit forecast 57 percent today as vehicle demand in the U.S. plunged and the yen gained against the dollar, eroding the value of exports. The Nikkei 225 Stock Average slid 3.1 percent today and the MSCI World Index lost 0.8 percent. Demand for dollars may weaken on speculation a U.S. government report today will show the world’s biggest economy shrank at the fastest pace since 1982. U.S. GDP “From a fundamental perspective, the GDP report would be negative for the dollar and market sentiment,” said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. U.S. gross domestic product contracted at a 5.5 percent annual rate from October through December after a 0.5 percent decline in the previous quarter, according to the median forecast of 79 economists surveyed by Bloomberg News. The ICE’s Dollar Index, which tracks the greenback versus the euro, the yen, the pound, the Canadian dollar, the Swedish krona and the Swiss franc, increased for a third day, rising 0.9 percent to 86.023. The index rose 5.8 percent this month, following a 6 percent advance last year.

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