The yen fell to a five-month low against the euro as U.S. plans to help banks dispose of toxic assets spurred investor appetite for higher-yielding currencies. South Korea’s won, Australia’s dollar and Britain’s pound rose for a third day against the yen as stocks rallied around the world on speculation the worst of the financial turmoil may be over. Treasury Secretary Timothy Geithner announced yesterday a plan to finance as much as $1 trillion in purchases of illiquid bank assets, sapping demand for safety. “Yen weakening is the stream in the market,” said Hidetoshi Yanagihara, a currency trader at Mizuho Corporate Bank in New York. “Everyone seems to take risks again.” The yen declined 0.8 percent 133.18 per euro at 8:34 a.m. in New York, from 132.17 yesterday. It touched 134.51, the weakest since Oct. 21. Japan’s currency lost 1.2 percent to 98.16 per dollar from 96.95. The dollar gained 0.5 percent to $1.3561 per euro from $1.3633. The greenback reached $1.3738 on March 19, the weakest since Jan. 9. The U.S. currency depreciated 1.2 percent to $1.4742 per pound from $1.4572 after sliding to $1.4778, its weakest level since Feb. 10. The yen slid against all of the 16 most actively traded currencies tracked by Bloomberg on speculation the stock rally will spur investors to purchase higher-yielding assets overseas. Japan’s benchmark interest rate is 0.1 percent, compared with 1.5 percent in the euro region and 3.25 percent in Australia. Geithner Sparks Rebound “Equity markets are rebounding on the back of Geithner’s plan, and that’s providing support for higher-yielding currencies,” said Ian Stannard, a currency strategist at BNP Paribas SA in London. “Some broad-based yen weakness is now in play. As long as this optimism holds up, we’ll break through 100 yen per dollar this week.” South Korea’s won advanced 2 percent to 14.08 versus the yen, Australia’s dollar climbed 0.5 percent to 68.72 yen and the pound appreciated 2.5 percent to 144.80 yen. The U.K. currency reached 145.09 yen, the highest level since Dec. 1. The Nikkei 225 Stock Average rose 3.3 percent, its sixth gain in seven days, and the MSCI World Index advanced 0.4 percent. Japan’s currency also declined for a third day against the dollar on concern a government report tomorrow will show the economy posted a trade deficit for a fifth month, suggesting reduced demand for the nation’s exports. The Finance Ministry may say the custom-cleared trade shortfall was 20 billion yen ($203 million) in February, compared with a record 956.9 billion yen in the previous month, according to a Bloomberg News survey of economists. Weaker Yen The yen fell versus 15 of the 16 major currencies this quarter, dropping the most versus Norway’s krone and Brazil’s real. Against the yen, the krone surged 19 percent to 15.4616 and the real climbed 11.6 percent to 43.8330. The Dollar Index, which the ICE uses to track the greenback against the currencies of six major U.S. trading partners, gained 0.4 percent today to 83.73. The gauge is down 4.8 percent this month on bets fewer investors will seek a refuge from global economic turmoil after the Fed said on March 18 it would buy as much as $300 billion of Treasuries and increase purchases of agency mortgage-backed securities to keep borrowing costs down. “The dollar weakness has been rapid and dramatic and caught many people by surprise,” said Mitul Kotecha, head of global foreign exchange strategy at Calyon in Hong Kong. “The move appears to be overdone. The dollar is still the world’s reserve currency.” Pound Versus Yen Investors should buy the British pound against the yen on speculation the U.K. government’s strategy of pumping money into the financial system will boost financial shares, according to BNP Paribas SA. The Bank of England bought 7 billion pounds ($10 billion) of gilts in the week through March 19 with newly created money using its Asset Purchase Facility. The central bank’s so-called quantitative easing has helped reduce the cost of protecting U.K. government bonds from default and is “positive” for assets such as stocks and commodities, analysts at BNP Paribas, France’s largest bank, wrote in a research note yesterday. “Sterling-yen should perform pretty well as long as equities rally and risk appetite improves,” Sharada Selvanathan, a currency strategist in Hong Kong at BNP Paribas, said in an interview, confirming the note. “There could also be some flows leaving Japan as investors look outside for investment opportunities.” Credit default swaps on U.K. government debt dropped to 113.64 basis points yesterday from 122.00 basis points on March 20, according to CMA Datavision prices. The contracts decline as perceptions of credit quality improve. ECB’s Policy Demand for the euro may weaken after European Central Bank President Jean-Claude Trichet said interest rates may be cut further as the bank works to counter the global economic slump, analysts said. “Our main policy rates are not at their lowest level and they could diminish further,” Trichet said in a speech yesterday in Mexico City. “While the euro is now enjoying a strong rally on hopes for a stabilization of credit markets, the currency looks to be hostage to potential downside risks,” said Yasuhide Yajima, senior economist in Tokyo at NLI Research Institute Ltd., a unit of Japan’s second-largest life insurer. “Given the fragile banking system in Europe and the recession, the ECB may need to ease monetary policy further, boding ill for the euro.” The 14-day relative strength index on the 16-nation currency versus the greenback, a gauge used by traders to project trends, was at 70.023 today, down from 71.449 yesterday. A level above 70 typically signals an asset is poised to fall.

Source