24 Mar 2009
March 24 (Bloomberg) -- The yen traded near a five-month low against the euro and the dollar may extend its drop on bets additional U.S. government steps to help banks dispose of toxic assets will reduce demand for the currencies' safety.The Swedish krona and Norwegian krone were two of the biggest gainers versus the greenback among the major currencies yesterday. Stocks rallied on Treasury Secretary Timothy Geithner's plan to remove bad debt from the books of banks, increasing demand for higher-yielding assets. The Swiss franc fell to near the lowest level this year against the euro.
"We are not very positive on the yen at all," said David Bloom, global head of currency strategy at HSBC Holdings Plc in London, in a Bloomberg Radio interview. "The safe-haven status for both the yen and the Swiss franc is under pressure."
The yen traded at 132.17 per euro at 6:01 a.m. in Tokyo after depreciating 1.4 percent yesterday and touching 132.57, the weakest level since Oct. 21. The yen was at 96.99 per dollar following a 1 percent decline. The dollar traded at $1.3632 against the euro after a 0.4 percent drop. The U.S. currency reached $1.3738 on March 19, the weakest level since Jan. 9.
The Norwegian krone, the biggest gainer versus the dollar among the most actively traded currencies in the first quarter, rose 1.4 percent to 6.2866 yesterday as crude oil increased above $54 a barrel. Norway is the world's fifth-biggest producer of crude oil. Sweden's krona gained 2.1 percent to 7.9965 per dollar on increased demand for higher-yielding assets.
Target Lending Rates
The Federal Reserve's target range of zero to 0.25 percent for overnight lending between banks compares with 2.5 percent in Norway and 1 percent in Sweden.
The franc decreased 0.2 percent to 1.5332 per euro on reduced haven demand for the currency. It declined to 1.5447 on March 16, the weakest level since Dec. 21, after the central bank said four days earlier that it would sell the currency to arrest its gains.
The U.S. currency fell 0.4 percent against a gauge of the counterparts of six major trading partners yesterday after last week's plunge on the Fed's decision to buy Treasuries.
The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, dropped 4.1 percent last week, the biggest decrease since September 1985. That's when the U.S., U.K., France, Japan and West Germany agreed at New York's Plaza Hotel to coordinate the dollar's devaluation versus the yen and deutsche mark. The gauge for the greenback fell 5.1 percent in March, paring its gain this quarter to 2.7 percent.
Fed's Bond Buying
The U.S. currency slid almost 5 percent versus the euro last week, its biggest decline since mid-December, after the Fed unexpectedly announced on March 18 that it would buy as much as $300 billion of Treasuries and increase purchases of agency mortgage-backed securities to lower consumer borrowing costs, a policy known as quantitative easing.
Gains in the euro may be tempered by speculation the dollar's decline has gone too far. The 14-day relative strength index on the 16-nation currency versus the greenback, a gauge used by traders and analysts to project trends, rose yesterday to 71.6, near the highest level in three months. A level above 70 tends to signal a currency's gain is too fast to sustain.
"Bottom line, I'm bullish on the dollar," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. "Our fiscal and monetary policy is more aggressive." The U.S. currency will strengthen to $1.29 per euro by the end of the second quarter, Chandler forecasts.
The Standard & Poor's 500 Index advanced 6.5 percent yesterday on the U.S. Treasury's plan to finance as much as $1 trillion in purchases of distressed assets.
Dollar Outlook
"The markets are looking at Geithner's plan favorably," said Geoffrey Yu, a London-based strategist at UBS AG, the world's second-largest foreign-exchange trader. "We could well see the dollar push lower as risk appetite improves a bit."
European Central Bank President Jean-Claude Trichet said in an interview with the Wall Street Journal that zero interest rates have "drawbacks" and would not be appropriate. The ECB cut the main refinancing rate to a record low of 1.5 percent on March 5 to stem the worst recession since World War II.
