The yen and dollar gained versus all of the other major currencies on increased demand for safety as the swine flu spread and Lawrence Summers, director of the White House National Economic Council, said the U.S. economy will keep shrinking. The Mexican peso plunged the most against the dollar since November after more than 100 people died of the flu in Mexico and cases were confirmed in the U.S. and Canada. The Australian and New Zealand dollars and the South African rand were among the other biggest losers on concern the spread of the virus may cause the global economic slump to deepen. “The swine flu story won’t disappear overnight, which will distract any upside for risky currencies,” said Alan Ruskin, head of international currency strategy in North America at RBS Securities Inc. in Greenwich, Connecticut. “The market is picking up on Mexico now. If it gets much more serious, the impact goes well beyond Mexico.” The yen gained 1.5 percent to 126.78 per euro at 11:38 a.m. in New York, from 128.66 on April 24. The dollar climbed 1 percent to $1.3117 versus the euro, from $1.3242 last week, when it weakened to $1.33 for the first time in almost two weeks. The yen gained 0.5 percent to 96.65 per dollar from 97.17. It touched 96.44, the strongest level since March 30. The Mexican peso was the biggest loser among major currencies tracked by Bloomberg as the government requested the closing of bars, movie theaters and churches in the capital to contain swine flu. The currency dropped as much as 4.2 percent to 13.9209 per dollar, the weakest level since April 7. It was the biggest intraday decrease since Nov. 3. Mexico’s Tourism Foreign tourism brought $13.3 billion into the economy last year, making it the nation’s third-largest source of foreign currency, behind oil exports and remittances from Mexicans living abroad. Traders predict price swings for the peso will widen. Implied volatility on one-month options for the dollar versus the peso increased to a one-month high of 23 percent. Traders use volatility readings to set prices for options. Australia’s dollar fell 1.1 percent to 71.56 U.S. cents, and the New Zealand currency dropped 0.6 percent to 56.92. The rand lost 0.2 percent to 8.73 per dollar. The yen gained 3.8 percent to 7.007 versus the Mexican peso and 2.7 percent to 14.40 against the Norwegian krone. Japan’s currency lost 11 percent versus the peso and 9 percent against the krone in the past three months as investors bought higher- yielding assets at the expense of the yen on signs the global economic recession may be easing. Yen Was ‘Oversold’ “The market was oversold in terms of yen positions,” said Henrik Gullberg, a foreign-exchange strategist in London at Deutsche Bank AG, the world’s largest currency trader. “Swine flu concern has added to the yen-appreciation bias as the market has corrected.” The dollar-yen exchange rate dropped below its 55-day moving average on April 24 for the first time since Feb. 13, indicating the yen may gain to a range of 95.96 to 95.65, Citigroup Inc. technical analysts Tom Fitzpatrick in New York and Shyam Devani in London wrote in a note to clients today. They use charts to predict a currency’s moves. The euro declined for the first time in five days against the dollar before next week’s meeting of the European Central Bank, at which policy makers will announce whether they intend to take additional measures to push down borrowing costs. Investors in the past week increased bets the ECB will reduce its 1.25 percent target lending rate at its May 7 meeting. The implied yield on the three-month Euribor interest- rate futures contract for June delivery fell to 1.295 percent from 1.325 percent a week ago. Summers on Economy The U.S. economy will experience “sharp declines in employment for quite some time this year,” Summers, the White House economic adviser, said yesterday on “Fox News Sunday.” His comments came before a U.S. report in two days that economists surveyed by Bloomberg say will show the world’s largest economy contracted 4.7 percent in the first quarter, after shrinking 6.3 percent in the final three months of 2008. Investors who expect the longest contraction since the early 1980s to continue say the currency should appreciate as a haven from turmoil in world markets. Foreign investors bought a net $22 billion of U.S. financial assets in February, the Treasury Department said April 15. Those bullish on the U.S. economy say the dollar will strengthen as America recovers first from the global economic recession. Equity Flow “The equity-flow data have been dollar-supportive almost any way you look at it,” said Robert Blake, head of strategy for North America in Boston at State Street Global Markets LLC, which has $11.3 trillion in assets under custody. “When people flood into the equity market, they’ve been buying the dollar as well.” More foreign money flowed into U.S. stock markets in the 20 business days ended April 15 than in 69 percent of the other 20- day periods going back to 1997, according to State Street data. The five-day flow was in the 77.6 percentile, compared with outflows in the last six months that were higher than 86.4 percent of past periods, the data showed.

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