Dollar, Yen Fall

The dollar fell to a two-week low versus the euro and the yen declined as stock gains and government efforts to cushion against the global economic slump reduced the haven appeal of the currencies.

The yen decreased versus the New Zealand and Australian dollars as U.S. lawmakers prepared to vote on a $15 billion automotive bailout, prompting bets investors will sell the Japanese currency and buy higher-yielding assets. South Korea’s won appreciated the most against the dollar in almost six weeks.

The dollar fell 0.9 percent to $1.3047 per euro at 1:15 p.m. in New York, from $1.2927 yesterday. It touched $1.3054, the weakest level since Nov. 26. The yen slid 1.7 percent to 121.11 per euro from 119.07. Against the dollar, it depreciated 0.9 percent to 92.97 from 92.13.

The won was the biggest gainer versus the dollar, increasing as much as 4 percent to 1,359.70 per dollar. The Japanese government plans to help South Korea obtain foreign currencies by raising its currency swap agreement to about $30 billion, Nikkei reported today. It was the biggest intraday gain since Nov. 3.

China’s yuan rose for a sixth day, increasing 0.1 percent to 6.8636 per dollar, on evidence the central bank is allowing currency appreciation to encourage investors to keep money in the nation during the global economic slump.

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 0.2 percent to 85.687. It touched 88.463 on Nov. 21, the highest since April 2006.

The dollar gained 13 percent against the euro this year 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. and seek shelter in government debt.

Japan’s currency dropped 0.8 percent to 61.15 versus the Australian dollar and 1.5 percent to 50.72 against New Zealand’s currency today on speculation investors will resume 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 lending rate compares with 4.25 percent in Australia and 5 percent in New Zealand.

The yen gained this year against all 178 currencies tracked by Bloomberg as the global recession encouraged Japanese investors to repatriate funds. The currency appreciated 21 percent versus the dollar, 36 percent against the euro and 70 percent against New Zealand’s dollar as carry trades unwound.

The pound slid to an all-time low against the euro, reaching 88 pence, after a report showed the U.K. economy may contract at the fastest pace in 18 years this quarter, strengthening the case for interest-rate cuts.

The pound weakened to 88.004 pence per euro, the lowest level since the single currency’s debut in 1999, from 87.60 pence yesterday. It traded at 87.71 as of 5:23 p.m. in London. The British currency fell to 79.7, from 80, against the Bank of England’s trade-weighted basket of currencies. Against the dollar, it rose to $1.4850, from $1.4750.

The pound slipped 16 percent against the euro and 25 percent versus the dollar this year as the Bank of England reduced its benchmark interest rate to 2 percent from 5.5 percent to fend off the U.K.’s first recession in 17 years. The European Central Bank reduced its key rate to 2.5 percent from 4.25 percent since September., Bloomberg
12/10/2008 11:02:19 AM