Dollar, Yen Drop as Obama’s Job Creation Proposals Curbs Demand for Safety

By Kristine Aquino and Masaki Kondo - Sep 9, 2011 11:15 AM GMT+0700

The dollar and yen declined against most of their major peers after President Barack Obama unveiled proposals to create jobs and boost the U.S. economy, damping demand for safer assets.

The dollar snapped yesterday’s advance versus the euro after Obama urged Congress to pass his $447 billion plan. The yen slid after Finance Minister Jun Azumi said he will tell his counterparts in the Group of Seven nations that Japan remains prepared to take “bold” action in currency markets. The Australian and New Zealand dollars advanced after a report showed China’s inflation cooled from a three-year high.

“We can say that Obama’s plan is seen favorably in the market, boosting risk appetite and spurring selling of the dollar and yen,” said Daisaku Ueno, president of Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest online currency broker. “Expectations for stimulus measures are strong.”

The dollar fell to $1.3925 per euro as of 12:54 p.m. in Tokyo from $1.3882 in New York yesterday when it rose to $1.3873, the strongest since July 12. It traded at 77.47 yen from 77.51. Japan’s currency dropped to 107.87 per euro from 107.59. The dollar advanced 2 percent against the 17-nation euro this week, while the yen gained 1.1 percent.

Obama proposed a jobs plan that includes infrastructure spending, subsidies to local governments and tax reductions. The centerpiece of the plan is cuts in payroll taxes, which cover the first $106,800 in earnings and are evenly split between employers and employees.

‘Sincere’ Effort

“I think in this case the president is sincere about trying to figure out ways to create jobs,” Robert Sinche, the global head of currency strategy at Royal Bank of Scotland Plc, said in an interview in Singapore. “I think in terms of the U.S., we don’t believe in a double dip.”

Demand for the yen was limited before G-7 finance ministers meet today in Marseille, France, to discuss ways to bolster their economies. Japan’s Azumi said before departing Tokyo that he would appeal to the group to appreciate his concern about excessive yen gains. The Cabinet Office today said Japan’s gross domestic product shrank at an annualized 2.1 percent rate in the three months ended June 30, more than the 1.3 percent contraction reported last month.

G-7 Meeting

Members have indicated intervention “should be done in agreement with the G-7 as opposed to unilaterally,” Rintaro Tamaki, who was a vice finance minister until July and directed two of Japan’s three rounds of yen sales in the past year, said in an interview in Paris yesterday. He was referring to language in an Aug. 8 statement by the G-7 that said officials will “closely consult” each other on currencies.

Japan has intervened three times in the past 12 months to weaken its currency, with the last operation being a 4.51 trillion yen sale in August, the largest monthly amount since March 2004. The yen went on to reach 75.95 per dollar on Aug. 19, a postwar record.

The euro is set for a second week of losses against the dollar on speculation the European Central Bank will lead its counterparts in coordinated monetary easing after it cut its growth forecast for the region this year.

“There are too many problems in Europe: it will be just a drag on growth,” said Derek Mumford, a Sydney-based director at Rochford Capital, a foreign-exchange and interest-rate risk- management firm. “Europe’s diverse governments, different fiscal policies and all the troubles that come with it will take a toll on the euro in the near term.”

ECB Rate

The ECB left its benchmark rate at 1.5 percent and slashed its 2011 growth forecast to 1.6 percent from 1.9 and to 1.3 percent from 1.7 for 2012 at yesterday’s meeting in Frankfurt.

The ECB, the Bank of Japan and the Federal Reserve may implement coordinated monetary-policy easing to tackle weak growth, Morgan Stanley economists wrote in a note to investors on Sept. 7.

The Australian and New Zealand dollars trimmed weekly losses against the greenback after data showed that Chinese consumer prices eased last month, curbing speculation policy makers will take further steps to bring down costs.

China’s inflation “will be less of an issue going forward,” said Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole CIB. “We should see more support for the Australian and New Zealand dollars.”

China’s consumer prices climbed 6.2 percent from a year earlier in August, the National Bureau of Statistics said in Beijing today. That was in line with the median forecast in a Bloomberg News survey of economists and compares with a 6.5 percent increase in July. China is Australia’s largest trading partner and New Zealand’s second-biggest export market.

Australia’s currency advanced to $1.0626 from $1.0576 yesterday, paring its weekly loss to 0.2 percent. The New Zealand dollar rose 0.6 percent to 83.54 U.S. cents, set for a 1.5 percent decline since Sept. 2.

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net