By Ye Xie and Oliver Biggadike
March 13 (Bloomberg) -- The yen fell against most of the major currencies and headed for a fourth weekly decline versus the euro on speculation the worst of the banking crisis may be over, reducing demand for Japan’s currency as a refuge.
The Swiss franc was poised for its largest weekly loss against the euro since 1999 after the Swiss National Bank started selling the currency yesterday to stem its appreciation. The dollar fell against the euro this week as investors avoided Treasuries and sought higher returns.
“There has been a pickup of risk appetite this week,” said Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon, the world’s largest custodial bank, with more than $23 trillion in assets under administration. “The yen obviously suffered even during the time of risk aversion last month. Either way, we are looking for a much weaker yen.”
The yen lost 0.4 percent to 126.65 versus the euro at 11:09 a.m. in New York, from 126.16 yesterday. Japan’s currency declined 0.4 percent to 98.09 per dollar from 97.72. The dollar traded at $1.2912 against the euro, compared with $1.2913. The yen may weaken to 105 in three months, Shankar said.
Japan’s currency was down for a fourth week against the euro, losing 2 percent in its longest stretch of decline since January. Against the dollar, the yen gained 0.3 percent after a six-week losing streak. The euro advanced 2.1 percent versus the dollar this week, the biggest increase since mid-December.
Weakening Yen
The yen dropped 7.9 percent against the dollar in February even as the Standard & Poor’s 500 Index plunged 11 percent. Evidence Japan’s economy was spiraling deeper into a recession eroded demand for the yen as a refuge from financial turmoil. Japan’s government reiterated yesterday that the economy contracted last quarter at the fastest pace since 1974.
The New Zealand dollar, South Korean won and Australian dollar were the biggest gainers against the greenback today as investors sought higher-yielding assets.
The kiwi, as New Zealand’s currency is known, appreciated as much as 1.2 percent to 52.68 U.S. cents and the Aussie gained 0.7 to 66.04 U.S. cents, the highest levels since Feb. 13. The won increased 0.9 percent to 1,483.05 and headed for its biggest weekly advance in almost three months. The currency, Asia’s worst performer against the dollar this year, climbed 4.5 percent since March 6.
Swiss Intervention
The Swiss franc dropped 0.4 percent to 1.5366 per euro after touching 1.54, the weakest level since Dec. 22. The currency plunged yesterday after the Swiss National Bank said it began buying currencies in its first solo intervention in foreign-exchange markets since 1992 and halved the target lending rate to 0.25 percent. It lost 4.6 percent versus the euro this week, the worst performance since the 16-nation currency debuted in 1999.
Against the dollar, the franc dropped 0.4 percent to 1.1897 today and was headed for a 2.7 percent weekly decline.
“The SNB has dramatically reinforced the credibility surrounding its response to Swiss franc strength,” Barclays Capital currency analysts Adarsh Sinha and Koon Chow in London wrote in a report yesterday. “The combination of a credible threat of currency intervention and lower bond yields is likely to weigh significantly on the franc.”
The dollar’s decline versus the euro this week may be tempered by speculation that finance ministers and central bankers in the Group of 20 nations will fail to agree on measures to support the euro area’s economy, analysts said. U.S. Treasury Secretary Timothy Geithner, Bank of England Governor Mervyn King and their counterparts are meeting near London today.
Outlook for Europe
“I don’t think there will be a broad-based plan for stimulus in the euro zone,” said Meg Browne, a senior currency strategist at Brown Brothers Harriman & Co. in New York. “The dollar weakness is not likely to last.” The euro may drop to a range of $1.2680 to $1.2650 next week, she said.
The yen declined 1.7 percent to 51.74 per New Zealand dollar and 1.6 percent to 77.73 against Canada’s dollar as the S&P 500 rallied 9.6 percent this week. Bank of America Corp. Chief Executive Officer Kenneth Lewis said the bank had a profit in January and February, joining JPMorgan Chase & Co. and Citigroup Inc. in saying it has recovering from mortgage bond losses last year.
The Nikkei 225 Stock Average rose 5.2 percent after Japan’s Finance Minister Kaoru Yosano said Prime Minister Taro Aso is preparing a third spending plan and China signaled additional measures to bolster its economy.
“Risk appetite and sentiment turned more optimistic this week as markets were able to look past bad news,” said Carl Rajoo, a economist at Forecast Singapore Pte.
Goldman Sachs Group Inc. cut its three-month yen forecast to 105 per dollar from a prior estimate of 90. “Given the macro backdrop, a 14 percent overvalued yen versus the dollar is a challenge for exporters,” Goldman analysts led by London-based Thomas Stolper wrote in a note to clients on March 11.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net
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