Dollar, Yen Fall as Efforts to Support Growth Pare Haven Demand

By Ye Xie

Feb. 3 (Bloomberg) -- The dollar and yen fell against most of the other major currencies as government efforts to revive global economic growth reduced the currencies’ haven demand.

Australia’s dollar was the biggest gainer versus the yen after the Reserve Bank cut the overnight cash rate target to a 45-year low of 3.25 percent and the government said it will spend A$42 billion ($26.5 billion) to sustain the economy. The pound weakened for a second day versus the euro as a report showed U.K. construction shrank last month.

“We’ve seen some risk appetite coming back,” said Matthew Strauss, a senior currency strategist in Toronto at RBC Capital Markets Inc., a unit of Canada’s biggest bank by assets. “The market is still undecided, very much range-bound.”

The dollar declined 0.7 percent to $1.2928 per euro at 10:05 a.m. in New York, from $1.2843 yesterday, when it reached $1.2706, the strongest level since Dec. 5. The yen slid 0.3 percent to 115.18 per euro from 114.89 yesterday. The dollar fell 0.4 percent to 89.11 yen from 89.45.

Japan’s currency fell versus the euro for the first time in four days after the Bank of Japan said it will buy 1 trillion yen ($11.1 billion) of shares held by financial companies, increasing the money supply.
“The Bank of Japan’s purchases may also be aimed at staving off the exceeding positive bias in the currency,” wrote Ashraf Laidi, the chief market strategist in London at CMC Markets, in a note to clients.
Honda Motor Co. cut its full-year profit forecast by 57 percent last week as vehicle demand in the U.S. plunged and the yen gained against the dollar, eroding the value of exports.

Australian Spending 

The Aussie gained against all of the 16 major currencies tracked by Bloomberg, rising 1.3 percent to 57.13 yen after Australian Treasurer Wayne Swan announced a spending package that includes A$12.7 billion in grants to families and low- income earners and A$28.8 billion for infrastructure. The Reserve Bank of Australia cut its benchmark rate by 1 percentage point to the lowest level since February 1964.

Hungary’s forint tumbled as much as 1.5 percent to a record low of 302.75 versus the euro and extended this year’s decline to 11.5 percent on concern the economic slowdown will worsen. The forint dropped 1.2 percent to 233.26 versus the dollar.


The pound lost 0.3 percent to $1.4221 and 0.4 percent to 90.39 pence per euro as the Chartered Institute of Purchasing and Supply and Markit said a U.K. index based on a survey of purchasing managers at building companies dropped to 34.5 in January. A reading below 50 indicates contraction.

Weaker Pound 

The Bank of England will cut its main rate by a half- percentage point to 1 percent at its next meeting on Feb. 5, according to the median forecast of a Bloomberg News survey.
The pound fell to $1.3503 on Jan. 23, the lowest level since September 1985, on concern the government’s rescue of banks may widen the country’s budget deficit.
Investors should be wary of betting the U.K. will have a currency crisis similar to that in Iceland, according to Jim O’Neill, chief economist at Goldman Sachs Group Inc.
“The pound is very cheap for the first time in our professional history,” O’Neill said today at a foreign-exchange seminar in London. “You need to make sure that the U.K. is Reykjavik-on-Thames before you bet against the pound.”

Iceland’s krona slid 46 percent against the euro last year after the collapse of the banking system prompted investors to pull their holdings and forced the government to seek an International Monetary Fund bailout. The pound tumbled 23 percent versus Europe’s single currency in 2008.
The euro fell earlier to near an eight-week low versus the dollar after the European Union statistics office in Luxembourg reported that the price of goods leaving euro-area factories dropped 1.3 percent in December after a 2 percent decline in previous month.

Weighing on Euro

“Any weakness of European data is likely to weigh on the euro,” said David Woo, London-based global head of foreign- exchange strategy at Barclays Capital. Woo said the euro may fall to $1.25 in three months.
ECB President Jean-Claude Trichet reiterated in an interview on Bloomberg Television at the World Economic Forum in Davos, Switzerland, last week that the central bank’s next important meeting is in March, signaling policy makers will keep the rate unchanged at 2 percent on Feb. 5.
“Inflation and economic activities have slowed sharply, and there’s scope for the ECB to be more aggressive,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “Going to Thursday’s ECB and BOE meetings, we are negative on European currencies, favoring buying the dollar on pullback.”
The Federal Reserve extended its emergency-lending programs and foreign currency-swap lines by six months through Oct. 30, citing “continuing substantial strains in many financial markets.”

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
Last Updated: February 3, 2009 10:11 EST