Dollar, Yen Gain Versus Euro as Slowdown Spurs Demand for Haven

By Ron Harui and Stanley White

Jan. 30 (Bloomberg) -- The dollar headed for its largest monthly gain against the euro since October on speculation growing evidence of a global slowdown will increase the appeal of the currency to investors as a haven.

The euro is poised for the biggest loss versus the yen in three months after Austria’s Der Standard newspaper reported that billionaire George Soros said the euro may not “survive” unless the European Union pushes for a global plan to deal with toxic debt. Japan’s currency is set for a monthly advance versus Australia’s dollar as slowing growth prompts investors to repatriate funds from higher-yielding assets.

“For many investors the strategy is simple: avoid risk,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “That means funds are flowing back into the dollar and the yen. We can’t expect any good economic news from the U.S. or other major economies.”

The dollar rose to $1.2898 per euro as of 10:04 a.m. in Tokyo from $1.2954 late in New York yesterday. It has risen 8.3 percent this month, extending a 4.4 percent rally last year. The greenback fell to 89.58 yen from 90.03 yen. It was down 1.1 percent against the yen in January after a 19 percent decrease in 2008. The euro fell to 115.43 yen from 116.60 yen, following a 22 percent depreciation last year.

The euro weakened against 11 of the 16 most-active currencies this month. There’s a need for a global “agreement on how to share the burden of lost capital, and every country should be involved,” Soros told the Austrian newspaper. “Otherwise even more countries will suffer,” he said. “If the EU doesn’t do it, the euro may not survive the crisis.”

Soros’ ‘Record’

Soros, who made $1 billion breaking the Bank of England’s defense of the pound in 1992, told reporters this week he exited bets against sterling after it dropped to $1.40. The pound increased 0.5 percent to $1.4319 today.

“Given Soros’ track record, it emboldened people to shoot the euro,” said Neil Jones, head of hedge fund sales in London at Mizuho Corporate Bank.

Europe’s inflation rate probably dropped to 1.4 percent in January from 1.6 percent in December and the unemployment rate likely rose to 7.9 percent in December from 7.8 percent in November, according to Bloomberg surveys of economists. The reports are due for release at 11 a.m. in Luxembourg today.

Yen Versus Peso

The yen rose 1.1 percent to 58.10 versus the Australian dollar from 58.71 late in New York yesterday. Japan’s current- account surplus makes the yen attractive to investors in times of turmoil, as it means the country doesn’t rely on overseas lenders.

“We like selling dollar-yen,” analysts led by Jim McCormick, London-based global head of foreign exchange and local-markets strategy at Citigroup Inc., wrote in a research note yesterday. “Structural yen appreciation has yet to run its course as there remains scope for investors to unwind shorts.”

A short position is a bet that an asset will decline.

The Japanese currency will probably extend gains through to the end of the country’s fiscal year on March 31 as exporters buy the yen to hedge revenues and money managers bring funds home amid the global slump, according to Barclays Capital.

The yen also may gain as investors reduce so-called carry trades, where they borrowed in the currency to invest in nations where benchmark interest rates exceed Japan’s 0.1 percent.

“We expect even further yen appreciation toward the Japanese fiscal year end in March, as both corporate hedging and investor repatriation flows support the currency,” Toru Umemoto, chief currency strategist in Tokyo at Barclays Capital said, confirming a research note dated yesterday. “We believe the dollar will decline to 84 yen in three months.”

U.S. gross domestic product contracted at a 5.5 percent annual rate from October through December, the biggest drop since 1982, according to the median estimate in a Bloomberg News survey ahead of Commerce Department figures due later today in Washington.

The Federal Reserve held its target lending rate in a range of zero to 0.25 percent yesterday and said it’s prepared to purchase Treasury securities to resuscitate lending.

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