Dollar, Yen Gain for Third Day Versus Euro on Recession Concern

March 3 (Bloomberg) -- The dollar and the yen advanced for a third day against the euro on mounting concern eastern European nations will default, encouraging investors to seek the two currencies as a refuge.

The yen may extend gains on speculation investors will bring back earnings from overseas before Japan’s fiscal year ends March 31. The Dollar Index traded near the highest level since 2006 yesterday as stocks tumbled and Hungary had the outlook on its debt rating cut to “negative” by Fitch. The euro also fell on speculation European Central Bank Council Member Axel Weber may signal policy makers will cut interest rates to combat the recession.

“There is a definite sense that the U.S. dollar is attracting a safe-haven bid,” said Jonathan Cavanagh, a currency strategist in Sydney at Westpac Banking Corp., Australia’s fourth-largest bank. “It’s only a matter of time before we see some further signs of pressure” in the euro- region, he said.

The U.S. currency advanced to $1.2559 per euro as of 8:50 a.m. in Tokyo, from $1.2578 late yesterday in New York. It touched $1.2578 yesterday, the strongest level since Feb. 19. The yen climbed to 121.96 per euro from 122.58 yesterday. The yen rose to 97.11 per dollar from 97.45 yesterday.

The Hungarian forint dropped 3.4 percent yesterday to 244.49 per dollar, while Poland’s zloty lost 3.3 percent to 3.7895. The pound fell 1.8 percent yesterday to $1.4055.

‘No Way’

“Within the next six months, there’s no way these eastern European countries -- Poland, Ukraine, Estonia, even Greece -- will be able to avoid defaulting,” said Alan Kabbani, a senior currency trader at Wachovia Corp. in Charlotte, North Carolina. “It’s going to be impossible to pay off the loans. Where is the money going to come from? The loans are in foreign currencies. They are having their own currencies collapse, and on top of that their economies almost don’t exist anymore. It’s incredible to expect them to pay off the loans.”

The Dollar Index, which tracks the greenback versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, advanced yesterday to 89.003, the highest since April 2006.

“We continue to recommend buying the dollar on dips, especially versus emerging markets since eastern Europe is likely to remain under extreme pressure,” analysts led by Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co., wrote in a research note today. “Markets are likely to take the dollar even higher this week.”