Yen Falls to 2-Month Low Versus Euro as Risk Appetite Rises

By Yasuhiko Seki and Ron Harui

Oct. 23 (Bloomberg) -- The yen tumbled to a two-month low against the euro as a recovery in corporate earnings and improved prospects for the global economy revived demand for riskier assets.

Japan’s currency headed for a weekly decline versus 13 of 16 major counterparts before reports today forecast to show improvements in German business confidence and U.S. home sales. The pound climbed to a five-week high against the dollar ahead of a report economists say will show the British economy had a quarterly expansion for the first time since March 2008.

“Risk-taking sentiment is firm amid signs economies around the world are recovering,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “The yen and the dollar are likely to be sold as their interest rates will probably stay extremely low.”

The yen fell to 137.77 per euro at 11:32 a.m. in Tokyo from 137.24 in New York yesterday. It earlier reached 137.82, the weakest level since Aug. 13. The currency declined to 91.63 per dollar from 91.30. The euro was unchanged at $1.5033 after earlier touching $1.5060, the strongest since August 2008.

The pound rose to $1.6648 from $1.6624, after earlier reaching $1.6678, the highest since Sept. 14. The dollar was at 1.0053 Swiss francs from 1.0045 francs yesterday after earlier trading at 1.0034, the lowest since July 2008.

Australia, New Zealand

The yen is poised for a third weekly drop against the Australian and New Zealand dollars as Asian stocks extended an earnings-sparked rally in the U.S., and on bets the South Pacific nations will increase interest rates faster than other developed countries.

The MSCI Asia Pacific Index of regional shares rose 0.7 percent today. The Standard & Poor’s 500 Index increased 1.1 percent yesterday in New York.

Better-than-expected earnings at companies from Travelers Cos to McDonald’s Corp. boosted optimism the recession in the world’s largest economy is over. Profits have topped estimates at 79 percent of the companies in the S&P 500 that have released results, according to Bloomberg data. That would mark the highest proportion in data going back to 1993.

Benchmark interest rates are 3.25 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Australia’s dollar rose to 84.96 yen from 84.61 yen yesterday, heading for a 2 percent gain this week. New Zealand’s dollar climbed to 69.39 yen from 69.17 yen, and set for a 3 percent advance for the week.

German, U.S. Data

The euro was poised for a third weekly gain against the yen on optimism the economy in the 16-nation region is on the mend.

The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 92 in October from 91.3 in the previous month, according to a Bloomberg News survey before the data release today.

“Traders will be looking for signs the euro-zone economy is still recovering to remain comfortable with buying the single currency above $1.5000,” John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., wrote in a research note today.

European Central Bank council member Erkki Liikanen said this week on Finland’s YLE Radio Suomi that the euro area’s economy is no longer weakening.

Sales of existing homes in the U.S. rose in September to an annual rate of 5.35 million, a two-year high, according to the median forecast of 76 economists in a Bloomberg survey. The report from the National Association of Realtors is due at 10 a.m. in Washington.

British Pound

The pound was set for a second weekly gain versus the dollar as the Office for National Statistics will say today the U.K. economy expanded 0.2 percent in the third quarter from the second quarter, according to a Bloomberg survey of economists.

The Bank of England should pause its 175 billion-pound ($292 billion) bond-purchase program as the U.K. emerges from recession, the National Institute for Economic and Social Research said on Oct. 21. Gross domestic product will probably expand 0.7 percent in the fourth quarter, the London-based institute said.

“There is a perception among some in the market that the U.K. economy is recovering,” said Shinichi Hayashi, a Tokyo- based dealer at Shinkin Central Bank, the central institution for Japan’s financial cooperatives. “There’s talk that the pound is being bought on this view.”

U.K. policy makers will reassess the scale of their asset- purchase program at their Nov. 5 decision, minutes of the October meeting showed this week.

Technical Charts

The dollar erased losses versus the euro after the European currency’s 14-day relative strength index rose to 69.1 today from 64.9 a week earlier, near the 70 threshold that some traders use as a signal that prices have risen too quickly.

“The recent bout of euro strength is now looking to be over-stretched, given huge accumulation of short positions on the dollar,” said Soichiro Mori, manager of foreign-exchange promotion at FXOnline Japan Co., a margin-trading company. “A rise in the euro beyond the $1.50 level may elicit a sterner warning from European policy makers against the appreciation of their currency.”

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. A short position is a bet an asset will decline.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.