By Theresa Barraclough and Ron Harui
April 3 (Bloomberg) -- The yen weakened to above 100 per dollar for the first time in five months as the Group of 20 nations pledged to revive economic growth and on speculation the Federal Reserve will step up efforts to counter the U.S. slump.
The yen also fell to a five-month low against the euro and the Australian dollar as stocks rallied, increasing demand for higher-yielding assets. The euro is poised for a weekly gain against the dollar on speculation a European Central Bank official will signal the bank is done cutting interest rates after yesterday lowering them by less than economists expected.
“The market thinks the world is suddenly a better place,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. “That is largely reflected in increased risk appetite.”
The yen touched 100.18 per dollar and traded at 99.71 as of 10:55 a.m. in Tokyo, after falling 1 percent yesterday. Japan’s currency weakened to 134.04 per euro, from 133.98 yesterday in New York, when it dropped 2.6 percent, the most in five weeks. The yen is set for a 3.1 percent slide versus the euro this week.
Europe’s single currency traded at $1.3446, up 1.2 percent this week. Australia’s dollar rose to 71.39 yen, after reaching 72.33, the highest since Oct. 21, as a report showed the nation’s services industry shrank last month at a slower pace. The New Zealand dollar advanced to 58.43 yen, after reaching 59.03, the highest since Nov. 10.
Group of 20
The yen weakened against all 16 major currencies this week as world leaders agreed on measures to fight the global recession.
Policy makers from the Group of 20 nations called for stricter limits on hedge funds, executive pay, credit-rating firms and risk-taking by banks. They also tripled the firepower of the International Monetary Fund and offered cash to revive trade to help governments weather the turmoil resulting from the surge in unemployment.
“The G-20 summit could mark a turning point in the global financial crisis,” wrote analysts led by Callum Henderson, global head of foreign-exchange research at Standard Chartered Bank in Singapore, in a note today. “This should be supportive for high-yielding currencies such as the Australian dollar in the near term.”
Asian stocks jumped, with the regional benchmark index headed for its fourth weekly advance, following a rally yesterday in U.S. stocks that pushed the Dow Jones Industrial Average above 8,000 for the first time since Feb. 10.
Further Steps
Japan’s currency fell for a second day versus the greenback on expectations Fed Vice Chairman Donald Kohn may add to measures to revive the world’s second-largest economy, reducing demand for the currency as a shelter from the global crisis. Kohn speaks at 9:10 a.m. in Ohio.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock price changes that’s used as a measure of risk aversion, fell 0.6 percent yesterday, the third day of declines.
The euro gained against the yen as European policy makers cut the target lending rate by a quarter-percentage point to 1.25 percent, compared with a half-point reduction expected in a Bloomberg survey. Benchmark rates are 0.1 percent in Japan, 0.5 percent in the U.K. and between zero and 0.25 percent in the U.S.
“Interest-rate differentials between the euro zone and other nations such as the U.S. are still favorable for the euro,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “This makes it easy to buy the euro,” which may rise to $1.3550 and 135.00 yen today, he said.
‘Increasingly Benefit’
ECB President Jean-Claude Trichet indicated at a press conference in Frankfurt following the decision that the economy should “increasingly benefit” from the measures the central bank has taken.
Executive Board Member Lorenzo Bini Smaghi last month said European interest rates are lower than those in the U.S. when making a comparison of real inter-bank lending, adding to the argument against further reductions in the benchmark. He speaks at 11 a.m. in Rome.
Declines in the yen may be limited before a U.S. Labor Department report shows the world’s biggest economy lost more than half a million jobs for a fifth month, reducing the appeal of the greenback.
“There’s a risk of position adjustments before the U.S. labor report, which may prompt buying back of the yen,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader.
U.S. Unemployment
U.S. employers probably eliminated 660,000 jobs last month, following a reduction of 651,000 in February, according to the median forecast of 80 economists surveyed by Bloomberg. The Labor Department is scheduled to release the report at 8:30 a.m. in Washington.
The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, decreased 0.1 percent to 84.368, and is poised for a 1 percent weekly decline.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
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