Dollar, Yen Rise Versus Euro as Slump Fuels Demand for Haven

By Ye Xie and Lukanyo Mnyanda

Jan. 30 (Bloomberg) -- The dollar and yen rose versus the euro, heading for their biggest monthly gains since October as mounting evidence of a global slowdown increased the appeal of the currencies as havens from the financial crisis.

The euro declined for a second day on the slowest inflation in the 16-nation region since 1999 and an increase in the unemployment rate to a two-year high. The dollar and yen pared their gains versus the euro as a government report showed the U.S. economy contracted in the fourth quarter less than economists forecast.

“Safe-haven currencies remain the way forward, and that’s benefiting the yen and the dollar,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International. “The underlying data continues to be biased to the downside, and investors are not buying into the recovery story.”

The dollar advanced 0.9 percent to $1.2835 per euro at 8:34 a.m. in New York, from $1.2954 yesterday. The yen gained 1.1 percent to 115.27 versus the euro from 116.60. The dollar fell 0.3 percent to 89.79 yen from 90.03. Japan’s currency may strengthen to 87 per dollar and 110 against the euro in the next five weeks, Stretch said.

The U.S. currency gained 8.5 percent versus the euro this month after a 4.4 percent rally in 2008. The yen advanced 10 percent in January after appreciating 29 percent last year. The greenback dropped 1.1 percent versus the yen this month after a 19 percent decline in 2008.

The pound rose 1.1 percent to 89.61 pence per euro from 90.56 yesterday, extending its gain since Dec. 31 to 6.8 percent, the biggest monthly advance since the euro’s debut in 1999. Sterling was little changed at $1.4311, heading for a monthly loss of 1.9 percent.

Soros on Euro

The euro weakened against the dollar and yen a day after billionaire investor George Soros told Austria’s Der Standard newspaper Europe’s currency may not “survive” unless the European Union pushes for a global plan to deal with toxic debt.

Soros, who made $1 billion breaking the Bank of England’s defense of the pound in 1992, told reporters this week at the World Economic Forum in Davos, Switzerland, that he exited bets against sterling after it dropped to $1.40.

Europe’s inflation rate dropped to 1.1 percent in January, the lowest since July 1999, and the unemployment rate rose to 8 percent in December, the highest in two years.

The yen rose 2.3 percent to 57.37 versus the Australian dollar and 2.1 percent to 8.83 against the rand today. Japan’s current-account surplus makes the yen attractive to investors in times of financial turmoil because it makes the country less reliant on capital markets.

Honda’s Profit

Honda Motor Co., Japan’s second-largest automaker, slashed its full-year profit forecast 57 percent today as vehicle demand in the U.S. plunged and the yen gained against the dollar, eroding the value of exports. The Nikkei 225 Stock Average slid 3.1 percent today and the MSCI World Index lost 0.8 percent.

U.S. gross domestic product contracted at a 3.8 percent annual rate from October through December after a 0.5 percent decline in the previous quarter, the Commerce Department reported today. The median forecast of 79 economists surveyed by Bloomberg News was for a 5.5 percent decline.

The ICE’s Dollar Index, which tracks the greenback versus the euro, the yen, the pound, the Canadian dollar, the Swedish krona and the Swiss franc, increased for a third day, rising 0.9 percent to 86.023. The index rose 5.8 percent this month, following a 6 percent advance last year.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net