The yen traded near a two-week high against the euro amid speculation Group of 20 leaders meeting this weekend will fail to agree on ways to tackle Europe’s debt crisis, boosting demand for Japan’s currency as a refuge. The euro headed for a weekly loss against the dollar as European countries such as Germany initiated austerity plans while the U.S. calls for a focus on growth. Australia’s dollar fell for a second day against the greenback as concern the global recovery is slowing reduced demand for higher-yielding assets. The British pound approached $1.50 as Morgan Stanley raised its outlook for the currency. “Conditions remain supportive for safe-haven currencies such as the yen,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Concerns over slowing global growth are building, and sovereign-debt concerns are still very much elevated. Overall, conditions are unfavorable for risk assets.” The yen traded at 110.60 per euro at 9 a.m. in London from 110.52 in New York yesterday, when it rose to 109.54, the strongest since June 10. Japan’s currency was at 89.67 per dollar from 89.61 yesterday, when it climbed to 89.23, the highest since May 21. It has risen 1.1 percent this week. The euro was little changed at $1.2332 from $1.2333, and is set for a 0.5 percent decline this week. Australia’s dollar fell 0.3 percent to 86.45 U.S. cents, extending this week’s decline to 0.9 percent. Stock Losses Japan’s currency strengthened against all of its 16 major counterparts this week as investor appetite for riskier assets diminished. The MSCI World Index of shares fell 0.2 percent today, heading for its biggest weekly decline in a month. G-20 leaders will meet in Toronto on June 26-27 to discuss policies aimed at addressing Europe’s crisis, spurring global growth and overhauling financial regulation. Germany and the U.S. have been at odds on whether to prioritize debt reduction or stimulus, with Chancellor Angela Merkel this week saying Europe’s debt levels have to be reduced because they are one of the main causes of the crisis. The G-20 meeting is also expected to discuss proposals for a global bank levy and a tax on securities transactions to clamp down on financial speculation. “There’ll probably be some sort of agreement on the bank tax,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “That could be poor for equity markets, so that would be good for safe-haven currencies like the dollar and the yen.” Australian Dollar Australia’s dollar headed for a weekly loss before reports next week forecast to show economic and consumer confidence in the U.S. and Europe is waning. Investors should sell the Australian dollar against the yen as risk aversion is likely to increase, according to UBS AG, the world’s second-largest currency trader. UBS said investors should bet the Aussie will fall to 72 yen due to factors such as increasing financial-market regulation, a defeat for the German government’s presidential candidate on June 30, and “uncertainty” about stress tests on European banks next month. “All point to risk aversion flaring up in the near term as it did in May,” Gareth Berry, a currency strategist at UBS in Singapore, wrote in an e-mail to Bloomberg. “This will likely hurt commodity currencies, even though the long-term outlook is positive for currencies like the Australian dollar. The yen is likely to be the main beneficiary.” An index of executive and consumer sentiment in the 16 euro nations slipped to 98.3 this month from 98.4 in May, according to a Bloomberg survey. Over the same period, the U.S. Conference Board’s consumer confidence index declined to 62.5 from 63.3, a separate survey showed. Both reports are due June 29. Pound, Won “Risk sentiment is weakening as a number of economic data points are now showing the global recovery slowing,” said Hiroshi Yanagisawa, a Tokyo-based dealer at FX Prime Corp., a foreign-exchange unit of Japanese trading house Itochu Corp. “Growth-related currencies such as the Aussie are hostage to selling pressure.” The pound was little changed against the dollar, trading at $1.4928 from $1.4935 in New York yesterday, when it climbed to $1.5012, the highest level since May 12. The U.K. currency was at 82.61 pence per euro, from 82.57 pence yesterday, when it advanced to 81.81 pence, the strongest since November 2008. Morgan Stanley raised its 2010 and 2011 forecasts for the pound against the dollar and the euro, citing this week’s U.K. budget and the likelihood U.K. inflation will quicken. Budget Optimism Chancellor of the Exchequer George Osborne unveiled an emergency budget June 22 that included a levy on banks, a higher sales tax and spending cuts. The plan, together with measures proposed by the previous government, will generate 113 billion pounds ($169 billion) of deficit cuts, 15 percent of the 737 billion-pound budget foreseen for 2015, the Treasury said. “In light of the proactive budget and the higher inflation profile, we are adjusting our pound forecasts to show a more neutral outlook,” Emma Lawson, a London-based currency strategist at the U.S. bank, wrote in a note yesterday. Morgan Stanley said the pound may trade at $1.43 by the end of 2010 and $1.52 by the end of 2011, compared with previous projections of $1.29 and $1.41. The currency may rise to 81 pence per euro by year-end and 77 pence by end 2011, from earlier estimates of 90 and 83, according to the note. South Korea’s won weakened for a fourth day, the longest streak in three months, as overseas investors reduced their holdings of the nation’s stocks. Korea’s currency slid 2.2 percent to 1,215.19 per dollar. The last time it fell for four days was the period ended March 25. The Kospi index of shares declined 0.6 percent. “The won is reacting to the risk aversion we saw overnight,” said Moh Siong Sim, a Singapore-based foreign- exchange strategist for Bank of Singapore Ltd. To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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