The yen dropped versus the euro and the dollar on speculation a U.S. stock rally on the rescue will slow the sale of higher-yielding assets funded by low-cost loans in Japan’s currency. An index of the dollar versus the currencies of six major U.S. trading partners dropped from a 2 1/2-year high.
The dollar weakened 2.3 percent to $1.2873 against the euro at 2:57 p.m. in New York, from $1.2587 on Nov. 21, when it dropped 1.1 percent. The dollar gained 1 percent to 96.85 yen from 95.94. The euro rose 3.3 percent to 124.68 yen from 120.71.
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 to 85.938 after increasing to 88.463 on Nov. 21, the highest level since April 2006.
Brazil’s real, South Africa’s rand and Hungarian forint rallied as Citigroup’s rescue reduced aversion to higher- yielding, emerging-market assets. The real rose 6.1 percent to 2.3195 per dollar, the rand gained 4 percent to 10.0753 and the forint advanced 4.9 percent to 201.76.
The yen declined 7.1 percent to 41.72 against the real and 4.7 percent to 9.61 against the rand on bets carry trades will unwind at a reduced pace. In such transactions, investors get funds in a country with low borrowing costs and buy assets where returns are higher. The Bank of Japan kept its benchmark lending rate last week at 0.3 percent, compared with 13.75 percent in Brazil and 12 percent in South Africa.
The pound fell 0.9 percent to 85.15 pence per euro after the U.K.’s Debt Management Office said it will issue a record 146.4 billion pounds ($222 billion) of bonds to stave off a recession. That’s an 83 percent increase from the 80 billion pounds the government originally planned in March. Chancellor of the Exchequer Alistair Darling predicted the economy may shrink by as much as 1.25 percent next year, the most since 1991. Sterling increased 1.3 percent to $1.5112 as fewer investors sought refuge in the greenback.
The Indonesian rupiah dropped 2 percent to 12,650 per dollar and the South Korean won fell 1.2 percent to 1,514 as the International Monetary Fund said Asian economies will probably ease substantially.”