Fri, Jan 02, 2009 - Page 11 News List

Yen, dollar post 2008 gain over euro as investors flee

BLOOMBERG

The yen and the US dollar posted annual gains versus the euro as the first simultaneous recessions in the US, Europe and Japan since World War II encouraged investors to take refuge in the currencies.

The US dollar fell the most against the yen in more than 20 years last year on speculation the Federal Reserve’s zero interest rate would undermine demand for the greenback. The euro recorded its biggest rally against the pound since its 1999 debut, trading within 5 pence of parity on speculation the recession in the UK will deepen.

“It was a year of deleveraging, a year of dollar demand caused by uncertainty and a reversion to yen strength,” said Matthew Kassel, director of proprietary trading at ING Financial Markets in New York.

The US dollar dropped 19 percent to ¥90.86 yesterday from ¥111.75 at the end of 2007, the biggest decline since 1987. It gained 4.5 percent to US$1.3966 per euro from US$1.4057, the first increase in three years. It touched US$1.6038 on July 15, the weakest level ever. Europe’s currency decreased 22 percent to ¥126.82 from ¥163.04.

The rand was the worst performer against the US dollar last year among major currencies tracked by Bloomberg, weakening 27 percent to 9.4375 as commodity prices fell and investors pulled money from higher-yielding assets.

The euro gained 30 percent to 95.80 versus the pound last year, the most since its inception, and reached a record high of 98.03 pence on Dec. 30. The Bank of England reduced its benchmark interest rate by 3.5 percentage points to 2 percent to limit the fallout from the global financial crisis.

The yen gained versus all of the major currencies last year, strengthening 52 percent to ¥64.15 against the Australian dollar and 61 percent to ¥53.18 versus New Zealand’s currency as US$1 trillion in credit-market losses encouraged investors to unwind carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher.

Japan’s target lending rate of 0.1 percent compares with 4.25 percent in Australia and 5 percent in New Zealand.

The yen’s gains versus the US dollar undermined overseas sales for exporters including Toyota Motor Corp, Honda Motor Co and Sony Corp. Japan’s overseas sales declined a record 27 percent in November from a year earlier, Japan’s Finance Ministry said last month.

“Japanese authorities are very concerned about their industrial sector, and moving through 90 on a sustained basis will be very tough for them to tolerate,” said Robert Sinche, head of global currency strategy at Bank of America Corp in New York, in an interview on Bloomberg Television. “It will be difficult to get actual intervention unless we get another pretty hard shot down below 90.”

The US dollar may strengthen to US$1.25 per euro and trade at ¥90 at the end of the first quarter, according to median estimates of analysts in a Bloomberg News survey.

The Australian and New Zealand dollars posted their biggest annual declines against the US dollar since starting to trade freely.

The currencies last year reached their highest level against the US dollar in more than 20 years before sliding in tandem with commodities, which account for more than half the countries’ exports. The Aussie dollar dropped 19 percent last year to US$0.71, while New Zealand’s fell 24 percent to US$0.58.

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