Dollar, Yen Drop as Appetite for Higher-Yield Assets Increases

By Inyoung Hwang

March 13 (Bloomberg) -- The dollar and yen fell versus all of their major counterparts as concern eased Greece would default and European and U.S. reports signaled the economic recovery is accelerating, fueling appetite for riskier assets.

The euro touched a one-month high versus the greenback as stocks gained for a second week. The yen fell against all 16 of its most-traded peers as Japanese officials said the government is ready to intervene to keep the currency from strengthening. Federal Reserve policy makers are forecast to hold interest rates steady at a meeting next week.

“The European problem was seen as a systemic risk problem,” said Joseph Trevisani, chief market analyst at FX Solutions, a currency brokerage in Ridgewood, New Jersey. “It’s become very clear they’re going to pull Greece out of the fire. That’s benefited the bellwether crosses directly.”

The dollar slid 1 percent to $1.3769 per euro in New York, from $1.3626 on March 5. It touched $1.3796 yesterday, its weakest level against the 16-nation currency since Feb. 11. The yen depreciated 1.4 percent to 124.69 per euro, from 123 a week ago. The greenback rose 0.3 percent to 90.56 yen, its second weekly gain, and reached 91.09 yen yesterday, its highest level since Feb. 23.

European Central Bank President Jean-Claude Trichet said yesterday in an interview with Bloomberg Radio that Greece’s plan to cut the euro-region’s largest budget deficit will win the backing of investors and credit-rating companies. French President Nicolas Sarkozy said March 7 the region is ready to rescue Greece and “fulfill its commitments” if necessary.

The Standard & Poor’s 500 Index advanced 1 percent for the week, and the MSCI World Index, a measure of stocks in 23 developed markets, gained 1.4 percent.

Swiss Franc 

The Swiss franc appreciated against the euro, strengthening past 1.46 for the first time in more than a year even after the central bank warned this week it would stem “an excessive appreciation.”

Canada’s currency approached C$1 versus its U.S. counterpart after employment climbed in February for a second month, adding to speculation policy makers are moving closer to raising the record-low 0.25 percent target lending rate. The currency touched C$1.0156, the strongest level since July 2008.

European industrial output rose in January the most since August 1989, a report showed yesterday. Output in the economy of the nations using the euro jumped 1.7 percent from December, the European Union’s statistics office in Luxembourg said.

Sales at U.S. retailers rose for a second month, advancing 0.3 percent after a revised 0.1 percent gain in January, a Commerce Department report showed. The median forecast in a Bloomberg News survey of economists was for a 0.2 percent drop.

‘Risk-Positive’ 

“The data is certainly risk-positive,” said Alan Ruskin, head of international currency strategy in North America at Royal Bank of Scotland Group Plc in Stamford, Connecticut. “It speaks to the global recovery.”
Asian currencies rallied as improving economic data and reduced concern that Greece will default spurred demand for regional assets. The Malaysian ringgit climbed 1.7 percent this week, the most since Oct. 9, to 3.3070 per dollar. The South Korean won rose 1.1 percent to 1,128.20 against the greenback.

“Investors are looking at the growth performance of those Asian currencies as a group, they are looking at policy moves that have taken place in some countries, and the judgment is that there is still potential for these currencies to move higher,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York.

Carry Trades 

Rising stock markets spurred carry trades, in which investors buy higher-yielding assets with amounts borrowed in nations with low interest rates. The benchmark of zero to 0.25 percent in the U.S. and 0.1 percent in Japan have made the dollar and yen popular for funding such transactions.

Japanese Finance Minister Naoto Kan said in parliament the government is ready to intervene in the foreign-exchange market if yen movements are abrupt. Central banks intervene by purchasing or selling currencies to influence exchange rates.

The Bank of Japan is considering expanding loans to banks to extend support to the economy, two central bank officials said on condition of anonymity. Governor Masaaki Shirakawa meets with colleagues for a policy session March 16-17, before the central bank’s unlimited lending program expires.

U.S. Rate Bets 

Traders increased bets the Fed will raise rates. Interest- rate futures on the CME Group Inc. exchange yesterday showed a 48 percent chance U.S. policy makers will raise the benchmark target rate for overnight loans between banks by at least a quarter-percentage point by September, compared with 43 percent odds a week earlier.

All of the 87 analysts in a Bloomberg News survey expect the central bank to hold the rate at a record low range of zero to 0.25 percent on March 16. Policy makers have pledged to keep it near zero for an “extended period.”

The bank’s policy statement after the meeting “is the main concern for all market participants,” said Hidetoshi Yanagihara, a senior currency trader at Mizuho Corporate Bank in New York. “If the economic assessment is better than the previous one, that might indicate they will erase the ‘extended period’ terminology in the near future,” Yanagihara said.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net
Last Updated: March 13, 2010 00:00 EST