Dollar Falls as Borrowing Costs Drop; Yen at Seven-Month High

Sept. 14 (Bloomberg) -- The dollar declined, reaching the weakest level in seven months against the yen, as falling funding costs for the U.S. currency prompted investors to sell it in favor of riskier assets.

The Dollar Index touched 76.457 on Sept. 11, the lowest since Sept. 25, 2008, as dollar-denominated short-term interest rates dropped to the cheapest level against yen-based loans in 16 years. The yen rose against higher-yielding currencies including the Australian dollar amid speculation Japanese investors will repatriate earnings before the end of fiscal first half this month.

“Falling U.S. interest rates triggered selling of the dollar,” said Yuji Kameoka, a Tokyo-based strategist at Daiwa Institute of Research Ltd., a unit of Japan’s second-largest brokerage. “As long as there are prospects for sustained monetary easing in the U.S. amid the jobless recovery, the weak trend for the dollar will continue.”

The dollar fell to 90.22 yen as of 8:03 a.m. in Tokyo from 90.71 yen in New York on Sept. 11. It earlier sank to 90.21 yen, the lowest level since Feb. 12. The yen surged to 131.81 per euro from 132.17 in New York. The euro advanced to $1.4590 from $1.4571.

The three-month London interbank offered rate, or Libor, for dollars dropped below that of the Swiss franc on Sept. 8, making the greenback the cheapest currency to fund purchases of higher-yielding assets. The dollar rate ended the week at a record low of 0.299 percent, compared with 0.359 for the yen and 0.307 for the franc.

Libor

The spread between three-month Libor for yen and dollar loans was 7.25 basis points on Sept. 8, according to British Bankers’ Association data, the widest gap since March 1993.

Futures traders increased bets that the yen will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 40,799 on Sep. 8, compared with net longs of 32,365 a week earlier.

Futures are agreements to buy or sell assets at a set price and date. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange as of Tuesday.