Yen Rises Versus Euro as U.S. Job Losses Increase Haven Appeal

By Ye Xie and Michael J. Moore

Dec. 5 (Bloomberg) -- The yen rose to a five-week high against the euro, and the dollar gained, as the U.S. payrolls report showed the biggest job losses in 34 years, increasing the haven appeal of the currencies.

Japan’s currency was headed for a fifth weekly increase versus the dollar, its longest rally since December 2004, as speculation rose that the Federal Reserve will cut borrowing costs to near zero this month. The euro weakened versus the dollar as German factory orders tumbled.

“It’s just euro-yen selling,” said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. “It’s pretty bleak.”

The euro fell 1.1 percent to 116.59 yen at 10:03 a.m. in New York, from 117.85 yesterday. It touched 115.90, the lowest since Oct. 28. The U.S. currency rose 0.8 percent to $1.2682 per euro from $1.2777. The dollar slid 0.3 percent to 91.92 yen from 92.23, after reaching 91.60, the lowest since Oct. 24.

U.S. payrolls dropped by 533,000 last month, bringing losses this year to 1.91 million, the Labor Department said today in Washington. The median forecast of 73 economists surveyed by Bloomberg News was for a reduction of 335,000. The unemployment rate rose to 6.7 percent.

“You have a tug of war between gloomy U.S. economic fundamentals and the flight to safety to the dollar,” said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. “The dollar still enjoys some support against most other currencies.”

Fed Rate Outlook

Futures contracts on the Chicago Board of Trade showed 76 percent odds the Fed will lower its 1 percent target lending rate to 0.25 percent by its next meeting on Dec. 16, compared with a 64 percent chance yesterday.

Japan’s currency was headed for a 3.7 percent increase against the euro and a 3.6 percent gain versus the dollar this week. The yen has risen 21 percent against the greenback and 39 percent versus the euro this year.

Some people are buying the yen because they view it as a relatively safe currency, Japanese Economic and Fiscal Policy Minister Kaoru Yosano told reporters at a briefing today.

The ruble dropped to near the lowest in three years against the dollar after Russia’s central bank widened the currency’s trading band as the price of Urals crude oil, the country’s main export, fell below $40 a barrel. Russia’s currency slid as much as 1.4 percent to 28.2031 per dollar today, the weakest level since February 2006.

Ruble’s Trading Band

Russia’s central bank buys and sells foreign currency to keep the ruble within a target trading band, which is managed against a basket of dollars and euros. Policy makers have widened the corridor four times since Nov. 11.

The euro fell versus the dollar as Germany’s Economy Ministry reported that manufacturing orders slumped in October more than forecast, dropping 6.1 percent after being adjusted for seasonal swings and inflation. The median forecast of 39 economists in a Bloomberg News survey was for a decline of 0.5 percent. It’s the 10th decline in the past 11 months.

The European Central Bank delivered the biggest interest- rate cut yesterday in its 10-year history after the economic slump deepened and the inflation rate plunged. ECB policy makers lowered the main refinancing rate by 0.75 percentage point to 2.5 percent.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net
Last Updated: December 5, 2008 10:10 EST