Yen, Dollar Decline

The yen and the dollar fell the most against the euro in two weeks as U.S. President-elect Barack Obama’s pledge to spend more on the nation’s infrastructure boosted stocks and reduced the currencies’ haven appeal.

Japan’s yen also slid against the Swedish krona and the Australian dollar after House Financial Services Committee Chairman Barney Frank said Congress and the Bush administration have reached an accord on an automaker rescue, prompting speculation investors will resume carry trades. The dollar dropped the most versus the pound in more than five weeks.

The yen weakened 1.2 percent to 119.64 per euro at 1:21 p.m. in New York, from 118.18 on Dec. 5. It dropped as much as 2.3 percent, the biggest intraday decline since Nov. 24. The yen was little changed at 92.87 against the dollar, compared with 92.83. The euro rose 1.6 percent to $1.2920 from $1.2718, increasing as much as 1.8 percent, the most since Nov. 24.

Japan’s currency dropped 2.1 percent to 61.32 versus the Australian dollar and 3.4 percent to 11.55 against the krona on speculation investors will get back into trades in which they obtain funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s 0.3 percent target rate compares with 4.25 percent in Australia and 2 percent in Sweden.

The dollar weakened as much as 2.4 percent to $1.5047 versus the pound, the biggest intraday decline since Oct. 29, as investors bought higher-yielding assets. The greenback fell 1.9 percent to 7.0877 Norwegian krone and 2 percent to 10.0975 South African rand.

The dollar gained 21 percent versus the euro and 34 percent against the pound since the end of July as a global economic slowdown prompted investors to repatriate overseas investments.

The cooling global economy is halting the spread of monetary union into eastern Europe and may lead to another year of losses for the Polish zloty, Hungarian forint and Czech koruna, according to Morgan Stanley and UBS AG.

The zloty fell 21 percent against the euro since July as Poland headed for its biggest economic slowdown in almost a decade, while Hungary turned to the World Bank, International Monetary Fund and European Union for a bailout as the forint weakened 16 percent. The koruna’s volatility almost tripled as it fell 13 percent. The two-year mandatory trial period before adopting the euro allows swings of no more than 15 percent., Bloomberg
12/8/2008 11:06:32 AM