Yen Trades Near Four-Week Low Versus Dollar as Stocks Advance

Feb. 6 (Bloomberg) -- The yen traded near a four-week low against the dollar as a gain in U.S. stocks reduced demand for the Japanese currency as a haven from financial turmoil.

The pound rose yesterday to a two-week high versus the greenback on bets the Bank of England will pause in cutting borrowing costs after it reduced its benchmark rate to a record low of 1 percent. The euro traded near a two-month low after European Central Bank President Jean-Claude Trichet signaled he may cut interest rates next month. U.S. payrolls fell by more than a half million, a report is forecast to show today.

“People are jumping on risk trades,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut.

Japan’s currency traded at 91.17 per dollar at 7:09 a.m. in Tokyo, after falling 2 percent yesterday. It broke through a two-week range of about 88 to 90, reaching 92.25, the weakest level since Jan. 8. The yen was at 116.56 versus the euro following a 1.5 percent decline. The euro traded at $1.2788 after reaching $1.2706 on Feb. 2, the lowest level since Dec. 5.

The yen dropped 3.1 percent to 133.54 against the pound and 3.8 percent to 9.28 versus South Africa’s rand as a 1.6 percent gain in the Standard & Poor’s 500 Index encouraged investors to sell Japan’s currency and buy higher-yielding assets.

Dodd on Accounting

Japan’s yen also weakened on speculation U.S. regulators will change an accounting rule governing assets banks hold, limiting their losses, according to Kim.

Senate Banking Committee Chairman Christopher Dodd told reporters on Feb. 4 that the so-called mark-to-market rule might need to be changed temporarily.

‘There’s some talk about the changes in the mark-to-market accounting rule,” said Kim. “But I still think there are enough signs that this rally of risky assets should last.”

U.S. employers probably cut 540,000 jobs in January, following a reduction of 524,000 in the prior month, according to the median forecast of 75 economists surveyed by Bloomberg News. The Labor Department is scheduled to release the non-farm payroll report at 8:30 a.m. in Washington.

The ruble declined to 41.02 against a target basket of dollars and euros yesterday, beyond the level of 41 that the central bank pledged to defend two weeks ago. The ruble may slide as much as 18 percent against the dollar by the middle of this year, Morgan Stanley said.

Euro Versus Krone

Europe’s currency dropped 2.1 percent to 12.60 rand yesterday and 1.4 percent to 8.7621 Norwegian kroner on concern the slump in Eastern Europe may further drag down growth in the 16-nation region that shares the single currency. The euro dropped 1.5 percent versus the dollar on Feb. 4 after Fitch cut Russia’s debt rating.

“The continued selling pressure on the euro is mainly driven by the problems in Eastern Europe,” said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG.

ECB policy makers left the main refinancing rate unchanged at 2 percent yesterday, in line with the median forecast of 53 economists surveyed by Bloomberg News. The market may be “right” to bet on a reduction of a half-percentage point in March, while cutting to zero isn’t “appropriate at this stage,” Trichet told reporters following the decision.

“Trichet is mildly dovish,” said Paresh Upadhyaya, who helps manage $50 billion in currency assets as a senior vice president at Putnam Investments in Boston. “He wants to leave the door open for another cut.”

ECB Outlook

Investors added to bets the ECB will reduce borrowing costs again later this year. The yield on the three-month Euribor interest rate futures contract due in March fell to 1.76 percent yesterday, down from 1.84 percent a week ago.

“Clearly there are more rate cuts to come,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “Europe is in a pretty deep hole. That will keep the euro under pressure.” Franulovich expected the ECB to lower rates to 0.75 percent by the end of the third quarter.

The pound rose 1.1 percent to $1.4625 yesterday on speculation the Bank of England will suspend lowering borrowing costs after it reduced the rate by a half-percentage point to the lowest level in the bank’s 315-year history.

“My impression is that the Bank of England is suggesting this is as much as they wanted to do for now,” said James McCormick, London-based global head of foreign-exchange and local-markets strategy at Citigroup Inc. “Policy makers have moved things a lot already. We are moving into, at least, a short period of rates on hold. The pound may be reaching the bottom.”