Yen, Dollar Advances

The yen and the dollar rose versus the euro as European reports indicated the global economic slump deepened, increasing the haven appeal of the currencies.

The dollar gained as investors sought safety in U.S. debt, pushing the rate on three-month Treasury bills to minus 0.01 percent. The euro weakened as an index showed German investors became more pessimistic this month about current economic conditions. The Canadian dollar fell after the central bank lowered its target lending rate to a half-century low.

The yen appreciated 1.3 percent to 118.79 per euro at 2:48 p.m. in New York, from 120.26 yesterday. Against the dollar, the yen strengthened 0.8 percent to 92.08 from 92.82. The dollar rose 0.4 percent to $1.2911 per euro, from $1.2963. The euro may increase to $1.33 in the next few weeks before declining again as risk appetite fades and weak European fundamentals kick in,” according to Galy.

The pound dropped 1 percent to $1.4772 as the Office for National Statistics said today in London that factory production slid 1.4 percent in October, the eighth monthly drop and the longest streak of declines since the 1980 recession.

Australia’s dollar fell 1.1 percent to 65.74 U.S. cents as National Australia Bank Ltd. said its sentiment index for November fell one point to minus 30, the lowest since the series began in 1989. The Aussie dropped 1 percent to 61.06 yen.

Canada’s currency decreased 1.2 percent to C$1.2655 per U.S. dollar after the central bank lowered its target lending rate by 0.75 percentage point to 1.5 percent. The median forecast of 23 economists surveyed by Bloomberg News was for a reduction of a half-percentage point.

The yen has gained this year against all 178 currencies tracked by Bloomberg News on speculation the global economic slump and cuts in interest rates will prompt investors to unwind carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s 0.3 percent target rate is the lowest among developed nations.

Japan’s currency appreciated 21 percent versus the dollar, 37 percent against the euro and 71 percent versus New Zealand’s dollar. It’s headed for its first annual gain versus Brazil’s real, the euro and New Zealand’s dollar in at least six years.

The euro fell against the yen as the ZEW Center for European Economic Research in Mannheim said investors became more pessimistic about current conditions, with an index of sentiment slumping to minus 64.5 from minus 50.4. German investor confidence unexpectedly rose in December, a separate index showed.

The dollar has gained 35 percent versus the pound this year and 14 percent against the euro as the credit-market seizure and $980 billion of losses on mortgage-related securities worldwide led investors to repatriate overseas investment to the U.S.

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, rose 0.4 percent to 85.92 today. It touched 88.463 on Nov. 21, the highest since April 2006., Bloomberg
12/9/2008 12:21:37 PM