Jan. 16 (Bloomberg) -- The yen dropped the most in almost a month against the euro while the dollar declined as measures to stabilize banks reduced demand for the currencies as havens.
Japan’s currency weakened against all of its major counterparts as the U.S. government agreed to provide $138 billion of funds and guarantees to Bank of America Corp., encouraging investors to sell the yen and buy higher-yielding assets. A gauge of the dollar against the currencies of six major U.S. trading partners fell the most in a week.
“Risk appetite is coming back,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. “The market was very bearish going into the week. When you have a piece of good news to surprise the market, it’s enough to squeeze the long-yen, long-dollar positions.” A long is a bet a currency will appreciate.
The yen weakened as much as 2.4 percent to 120.72 per euro, the biggest intraday decline since Dec. 18, before trading at 119.57 at 12:09 p.m. in New York, compared with 117.87 yesterday. The U.S. currency depreciated 1 percent to $1.3247 per euro from $1.3115. The dollar increased 0.5 percent to 90.24 yen from 89.84.
The decline in Japan’s currency today pared this week’s gain versus the euro to 1.7 percent and almost erased the advance against the dollar.
The ruble slid as much as 0.9 percent to 32.6675 per dollar, the weakest level since Russia redenominated the currency in 1998, after the central bank accelerated its devaluation to stem the drain on foreign-exchange reserves. Bank Rossii devalued the currency for the fifth time in six days, a central bank official said, more than double the pace in November and December.
Yen Versus Aussie
The yen declined 1 percent to 60.13 against the Australian dollar, 1.3 percent to 48.93 versus New Zealand’s dollar and 0.2 percent to 8.98 per South African rand on speculation investors will resume carry trades, in which they get funds in a country with low borrowing costs and buy higher-yielding assets elsewhere. Japan’s 0.1 percent target lending rate compares with 4.25 percent in Australia, 5 percent in New Zealand and 11.5 percent in South Africa.
The U.S. government agreed to invest in Bank of America to stabilize the company, the Treasury, Federal Reserve and Federal Deposit Insurance Corp. said in a joint e-mailed statement before the bank’s quarterly earnings report today.
‘Bad Bank’
Fed officials are focusing on the option of setting up a “bad bank” that would acquire hundreds of billions of dollars of troubled securities now held by lenders, according to people who’ve discussed the financial outlook with advisers to U.S. President-elect Barack Obama. He takes office Jan. 20.
“Sentiment has improved on this news, but previous bouts of bailouts haven’t led to sustained confidence in the outlook,” Emma Lawson, a currency strategist in London at Merrill Lynch & Co., wrote in a report today. “Markets are likely to fade the enthusiasm.”
The yen advanced to 113.64 per euro on Oct. 27, the strongest since 2002, as coordinated rate cuts by major central banks on Oct. 8 and financial-system bailouts in the U.S. and Europe failed to revive stock markets.
The U.S. dollar declined 2.3 percent to 6.9656 versus Norway’s krone and 1.6 percent to $1.48697 against the pound as Treasuries tumbled on reduced demand for safety. The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell as much as 1.2 percent to 83.46, the biggest intraday drop since Jan. 8.
‘Under Pressure’
“The U.S. dollar in general is under pressure,” said Meg Browne, a currency strategist at Brown Brothers Harriman & Co. in New York. “A short-term recovery from a bailout doesn’t alleviate some of the concerns in the market. We’ve got an economic slump.”
International demand for long-term U.S. financial assets dropped in November as foreign investors sold Treasury, agency and corporate debt, a government report showed.
Total net sales of long-term equities, notes and bonds totaled $21.7 billion, compared with selling of a revised $400 million in October, the Treasury said today in Washington. Including short-term securities such as stock swaps, foreigners bought a net $56.8 billion, compared with net buying of $260.6 billion the previous month.
The euro fell 1.5 percent against the dollar this week and headed for the third weekly loss, its longest losing streak in almost two months, as European Central Bank President Jean- Claude Trichet signaled yesterday he may cut interest rates further after lowering the main refinancing rate by a half- percentage point to 2 percent, matching a record low.
The benchmark compares with 1.5 percent in the U.K. and a range of zero to 0.25 percent in the U.S. The ECB isn’t planning to cut borrowing costs to zero, Trichet said in an interview with Japanese public broadcaster NHK.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Molly Seltzer in New York at mseltzer4@bloomberg.net
Last Updated: January 16, 2009 12:12 EST
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2 comments:
This is just maddening to me. I don’t get why we continue to bailout business for making bad decisions. Everyone is yelling the sky is falling but all they seem to be doing to me is digging a hole for us to drown in once it does fall.
Well, in my opinion...without government's bailout.. economy will get worse. The unemployment rate will increase and create other economic problems. So it is necessary to have the bailout.
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