Yen Rises to Two-Week High Versus Euro on Economic Concerns

Oct. 29 (Bloomberg) -- The yen reached the highest in two weeks against the euro amid signs the global economic recovery is losing steam, damping demand for higher-yielding assets.

The 16-nation currency fell for a fourth day against the yen as Asian stock sank and before a report forecast to show German unemployment rose in October. The New Zealand dollar was near the lowest level in three weeks after the central bank left the key rate unchanged and signaled it won’t rise until the second half of 2010, damping demand for the nation’s assets.

“As optimism about the global economy wanes, investors will question if any other central bank besides the Reserve Bank of Australia is willing to hike rates,” said Shuzo Kakuta, senior foreign-exchange adviser at Tokyo Tomin Bank Ltd. “Emerging uncertainty about exit strategies may trigger unwinding of carry trades that were used to secure higher yields.”

The yen traded at 133.03 against the euro at 9:46 a.m. in Tokyo from 133.43 yesterday in New York. It earlier reached 132.82 yen, the highest level since Oct. 14. The dollar was at $1.4701 per euro from $1.4706 after reaching $1.4683, the strongest level since Oct. 12. The yen fetched 90.49 per dollar from 90.75 in New York.

New Zealand’s dollar was at 71.86 U.S. cents from 72.10 cents. It earlier hit 71.69 cents, the least since Oct. 5. The dollar reached C$1.0821, the strongest level since Oct. 5.

Economic Data

The euro headed for the longest stretch of losses since September as a Bloomberg News survey of economists showed that the jobless rate in Germany, Europe’s biggest economy, probably rose to 8.3 percent in October from 8.2 percent in the previous month. The jobs report is due today.

Goldman Sachs Group Inc. cut its forecast for third-quarter U.S. economic growth to 2.7 percent from 3 percent. The median forecast in a Bloomberg survey of 79 economists was for growth of 3.2 percent following four-straight quarters of contraction. The Commerce Department’s report on gross domestic report is due at 8:30 a.m. in Washington.

Japan’s currency climbed 3.4 percent to 51.01 versus the Brazilian real yesterday on speculation investors will reduce carry trades, in which they borrow in the currency of a nation with low interest rates to purchase assets in another country where returns are higher.

Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S. make the yen and dollar favored funding currencies among investors seeking higher yields.

Reserve Bank of New Zealand Governor Alan Bollard left the official cash rate at a record-low 2.5 percent and said he saw “no urgency” to begin a withdrawal of stimulus.

The Standard & Poor’s 500 Index dropped 2 percent yesterday on concern a rally in equities this year outpaced prospects for economic growth. The MSCI Asia Pacific Index of regional shares fell 0.9 percent today and the Nikkei 225 Stock Average slid 1.9 percent.