Dollar Heads for Weekly Drop as Policies Revive Risk Appetite

By Ron Harui and Stanley White

Nov. 28 (Bloomberg) -- The dollar headed for its biggest weekly decline in almost three years against the euro on speculation policy makers' steps to spur growth and lending will reduce demand for the relative safety of U.S. assets.

The greenback was also on course for its fourth weekly loss versus the yen after the Federal Reserve committed $800 billion to ending a seizure in credit markets, the European Union proposed a 200 billion euro ($258 billion) stimulus package and China lowered interest rates by the most in 11 years. The Australian and New Zealand dollars were set for weekly gains as improved risk appetite boosted higher-yielding assets.

``We've seen an end to the panicked repatriation flows that have buoyed the U.S. dollar,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``Countries are working to solve the global economic crisis and their measures will eventually take hold. This is starting to put a floor under market sentiment.''

The dollar traded at $1.2893 per euro as of 9:55 a.m. in Tokyo, little changed from yesterday and down 2.4 percent from Nov. 21, the biggest weekly drop since January 2006. The dollar bought 95.50 yen from 95.19 yesterday and 95.96 a week ago. The euro was quoted at 123.11 yen from 122.89 yesterday, for a 2 percent gain this week. The dollar may decline to $1.2930 versus the euro today, Soma said.

Against the greenback, Australia's dollar rose 3.8 percent to 65.63 U.S. cents from 63.25 cents in New York on Nov. 21. New Zealand's dollar climbed 2.7 percent to 55.18 cents and South Korea's won advanced 2 percent to 1,465.50.

Monthly Dollar Decline

The dollar was also set for a third monthly decline against the yen and its first monthly loss versus the euro since June, as the Fed said on Nov. 25 it will devote $800 billion in new funding to bolster credit flow to homebuyers, consumers and small businesses and will take on credit risk by buying debt.

The EU proposed a stimulus package for its 27 member countries on Nov. 26 after data earlier this month showed the euro region fell into a recession in the third quarter for the first time since the introduction of the common currency in 1999.

The People's Bank of China reduced the one-year lending and deposit rates by 1.08 percentage points on Nov. 26. The lending rate fell to 5.58 percent and the deposit rate to 2.52 percent.

Gains in the euro may be stifled by European reports today that economists predict will show slowing inflation and rising unemployment, supporting the case for the 15-nation region's central bank to cut interest rates.

``The outlook for the euro is quite weak,'' said Stephen Halmarick, co-head of economic and market analysis at Citigroup Inc. in Sydney. ``We've got the European Central Bank easing interest rates much more aggressively in the next few months and further weakness in the European economy.''

ECB Rate Bets

The inflation rate in the euro area fell to a 14-month low of 2.4 percent in November, according to a Bloomberg News survey of economists. The European Union statistics office will release the report at 11 a.m. in Luxembourg. A separate report may show the unemployment rate rose to 7.6 percent in October, the highest since March 2007.

Traders increased bets the ECB will reduce its 3.25 percent benchmark rate. The implied yield on Euribor futures contracts expiring in June declined to 2.440 percent yesterday from 2.445 percent on Nov. 26.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net.