Dollar Heads for Weekly Loss as Policies Revive Risk Appetite

By Ron Harui and Stanley White

Nov. 28 (Bloomberg) -- The dollar headed for its biggest weekly decline in more than seven years against the euro on speculation policy makers’ steps to spur growth and lending reduced 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. The Australian and New Zealand dollars were poised 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 fell to $1.2933 per euro as of 7:36 a.m. in London, from $1.2904 yesterday and down 2.7 percent from Nov. 21, the biggest weekly drop since April 2001. The dollar bought 95.28 yen from 95.19 yesterday and 95.96 a week ago. The euro was quoted at 123.21 yen from 122.89 yesterday, for a 2.1 percent gain this week.

Against the greenback, Australia’s dollar rose 4 percent from a week ago in New York to 65.79 U.S. cents. New Zealand’s dollar climbed 2.8 percent this week to 55.25 U.S. cents and South Korea’s won advanced 1.8 percent to 1,469.00.

Benchmark interest rates are 5.25 percent in Australia and 6.50 percent in New Zealand, compared with 1 percent in the U.S. and 0.3 percent in Japan.

Rupee Declines

India’s rupee fell the most in two weeks, losing 0.9 percent to 49.8825 per dollar, after terrorist attacks across Mumbai left at least 120 people dead. Authorities closed stock, bond, commodity and currency markets yesterday. The Thai baht declined for a third day, reaching 35.54, the lowest level since February 2007, as protesters occupied Bangkok’s international airport for a fourth day.

The dollar was 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 flows to homebuyers, consumers and small businesses and will take on credit risk by buying debt.

The People’s Bank of China reduced its one-year lending and deposit rates by 1.08 percentage points, the most in 11 years, on Nov. 26. The lending rate fell to 5.58 percent and the deposit rate to 2.52 percent. The Chinese yuan was little changed this week at 6.8327 per dollar.

‘Quite Weak’

The EU proposed a stimulus package for its 27 member countries on Nov. 26 after data 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.

Gains in the euro may be tempered by European reports today that economists say will show slowing inflation and rising unemployment, supporting the case for the 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.”

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 today may show the unemployment rate rose to 7.6 percent in October, the highest since March 2007.

‘Turning Positive’

Traders increased bets the ECB will cut its 3.25 percent benchmark rate. The implied yield on Euribor futures contracts expiring in June declined to 2.440 percent today from 2.905 percent on Oct. 31.

Gains in the yen may be limited on speculation rising Asian stocks will give investors more confidence to buy higher- yielding assets.

“With Japanese stocks turning positive and calmer market conditions, there’s some selling of the yen,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “Risk- taking appetite seems to be improving.”

The Nikkei 225 Stock Average rose 1.7 percent and the MSCI Asia-Pacific Index of regional shares advanced 1.5 percent. The yen has climbed 33 percent versus the euro and 10 percent against the dollar in the past six months, undermining revenue at Japanese companies such as Panasonic Corp., the world’s largest consumer-electronics maker.

Panasonic’s Profit

Panasonic said yesterday the yen’s gains will cut its full- year operating profit by 22 billion yen ($231 million). The company said its latest forecast is based on a projection for the euro to average 125 yen in the second half of the fiscal year ending March 31, compared with 135 yen estimated previously. It maintained its estimate for the dollar to average 100 yen.

A government report today showed Japan’s unemployment rate unexpectedly fell in October as people stopped looking for work. The jobless rate dropped to 3.7 percent last month from 4 percent in September, the statistics bureau said in Tokyo.

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