Dollar Drops Versus Yen on Expectations Obama to Freeze Government Budget

The dollar dropped against the yen for a third day as Treasury yields fell on expectations President Barack Obama will propose a five-year freeze on non- security discretionary spending.


Sterling slid the most in a month versus the greenback after a report showed the U.K.’s gross domestic product unexpectedly shrank in the fourth quarter. A gain in the 10-year Treasury note pushed the yield down as much as 0.09 percentage point to 3.31 percent, the lowest level since Jan. 18.
“The White House issues are definitely pushing Treasuries up,” said Hidetoshi Yanagihara, a senior currency trader at Mizuho Financial Group Inc. in New York. “That’s pressuring dollar-yen.”

The dollar fell 0.3 percent to 82.25 yen at 5 p.m. in New York, from 82.53 yen yesterday. The dollar depreciated 0.3 percent to $1.3681 per euro, from $1.3638, after touching $1.3704, the weakest level since Nov. 22. The euro was unchanged at 112.54 yen.

Obama will make his proposal tonight in the annual State of the Union address to Congress, an administration official said on condition of anonymity. In his address last year, Obama called for a three-year freeze on most domestic spending, not including national security or defense.
The Federal Reserve may affirm following a meeting today and tomorrow its plan to buy Treasuries through June to reduce long-term yields and spur lending.

Quantitative Easing 

The central bank introduced its $600 billion asset-buying program, known as quantitative easing, in November in an effort to shore up the economy.
The Fed will leave its benchmark rate unchanged at zero to 0.25 percent, according to all 98 economists in a Bloomberg News survey.

The dollar rose earlier against the euro as the New York- based Conference Board’s consumer confidence index unexpectedly increased this month to 60.6, the highest level since May, from a revised 53.3 in December. The median forecast of 73 economists in a Bloomberg News survey was for an advance to 54 from a previously reported 52.5.

The 17-nation euro has surged 2.4 percent versus the dollar in 2011 on speculation European leaders will create a long-term approach to containing the sovereign-debt crisis.
The European Financial Stability Facility attracted an “overwhelming” 44.5 billion euros ($61 billion) of orders from about 500 bidders for its inaugural bond sale intended to help fund Ireland’s bailout. The Japanese government snapped up more than 20 percent of the 5 billion euros of five-year debt, according to the EFSF.

‘No Resolution’ 

“The euro has certainly benefited over the last week and a half,” said John McCarthy, director of currency trading at ING Groep NV in New York. “Somewhere up there people will maybe start to sell euros again because really there has been no resolution in the European peripheral problems.”
Sterling slid 1.1 percent to $1.5817, from $1.5988 yesterday, after falling 1.5 percent to $1.5752 in the biggest intraday decline since Dec. 15.

The U.K.’s gross domestic product contracted 0.5 percent in the three months through December after increasing 0.7 percent in the previous quarter, the Office for National Statistics reported today. Growth would have been “flattish” without December’s snowfall, the agency said. The median forecast in a Bloomberg News survey of 33 economists was for an expansion of 0.5 percent.

Swiss Franc
 
The Swiss franc appreciated 0.4 percent to 1.2894 versus the euro and gained 0.7 percent to 94.23 centimes per dollar.

“The franc picked up a flight-to-quality bid after the disturbing U.K. GDP data,” said Neil Jones, head of European hedge fund sales at Mizuho Financial Group Inc. in London.
The Stoxx Europe 600 Index decreased 0.7 percent, while the Standard & Poor’s 500 Index was little changed.

Canada’s dollar touched a level weaker than parity with its U.S. counterpart as commodities fell. The loonie, as the currency is nicknamed, declined 0.3 percent to 99.68 cents after touching C$1.0004.
The Thomson Reuters/Jefferies CRB Index of raw materials dropped 1.5 percent to 327.57. Futures on crude oil, Canada’s largest export, slid 1.9 percent to $86.22 a barrel.

Thailand’s baht slid to its weakest level since September and stocks fell for a fourth day after global funds trimmed holdings of shares and nationalists vowed to rally indefinitely over a border dispute with Cambodia. The baht depreciated 0.3 percent to 30.99 versus dollar after touching 31.06, the weakest level since Sept. 8.
Sarkozy on Yuan

French President Nicolas Sarkozy said he favors adding the Chinese yuan to the basket of currencies making up the International Monetary Fund’s Special Drawing Rights.

“Forty-two years after the creation of the SDR, shouldn’t we agree on a calendar and modalities for enlarging the SDR to include currencies such as the yuan?” Sarkozy asked at a press conference in Paris yesterday.
The IMF said in November the yuan doesn’t yet meet the “freely usable” criteria required for the basket, comprising the dollar, euro, yen and pound.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net