Yen, Dollar Fall as Stock Gains Sap Demand for Haven Currencies

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October 10, 2011, 12:29 AM EDT By Masaki Kondo and Kristine Aquino

Oct. 10 (Bloomberg) -- The yen and dollar fell against the majority of their most-traded counterparts as speculation that Europe can contain its debt crisis spurred a climb in U.S. equity futures, damping demand for haven currencies.

The euro rose versus 14 of its 16 major peers after French and German leaders pledged to deliver a plan in three weeks to recapitalize banks and reiterated their intention to keep Greece in the euro. Australia’s dollar gained for a fifth day against the greenback before data this week that may show employment in the South Pacific nation increased. Malaysia’s ringgit advanced versus the dollar on speculation global funds will invest more in the nation’s assets as the economy sustains its recovery.

“The reason for the weakness in the yen and dollar is just generally there’s been a slight improvement in risk appetite,” said Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole CIB. “Expectations or hopes for some sort of concrete solution for euro-zone debt problems have also helped to support risk appetite.”

The yen slid to 103.26 per euro at 11:56 a.m. in Singapore from 102.66 in New York on Oct. 7. It was unchanged at 76.73 per dollar. The euro climbed 0.6 percent to $1.3459.

The so-called Aussie strengthened to 98.21 U.S. cents from 97.68 cents, extending last week’s 1.1 percent gain.

Standard & Poor’s 500 Index futures advanced 1 percent. Japanese financial markets and U.S. Treasuries trading are closed today for national holidays.

European Response

French President Nicolas Sarkozy, speaking yesterday at a joint briefing with German Chancellor Angela Merkel, set a deadline to deliver a response that addresses Greece’s immediate difficulties and what he called the structural defects in the 17-nation euro area. He said European leaders would deliver a plan by the Group of 20 summit on Nov. 3.

Merkel said Europe’s leaders will do “everything necessary” to ensure banks have enough capital to weather the region’s debt crisis.

A reason “for the bounce in euro is that at least they’re doing something,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s largest interdealer broker. “It’s a big change from even a couple of weeks ago, where people were confused as to how united European leaders were. I think the euro will see a modest bid.”

The euro also strengthened on speculation it may be poised for a rebound, according to Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender.

‘Very Short Euro’

“A lot of the people who are gloomy on Europe have already sold their euros,” Callow said. “The market seems to be already very short euro, so that’s working in its favor.”

The difference in the number of wagers by hedge funds and other speculators on a drop in the euro compared with those on a gain climbed on Oct. 4 to the most since June 2010, figures from the Washington-based Commodity Futures Trading Commission showed.

The euro extended gains after Belgian Finance Minister Didier Reynders said today that his country will provide a guarantee for 60 percent of a “bad bank” being set up for Dexia SA. Prime Minister Yves Leterme said the nation has achieved the goal of freeing up the Belgian part of Dexia and giving security to depositors.

Dexia Deal

The dismantling of Dexia, once the world’s leading lender to municipalities, ends a 15-year cross-border experiment that soured during the credit crunch of 2008, when France and Belgium had to rescue the bank.

“The fact that the French and Belgian governments are starting to deal with it is obviously as well seen to be positive” for the euro, Credit Agricole’s Kotecha said.

Australia’s dollar is set to complete a five-day gain against the U.S. currency, the longest advance in a month.

The nation’s employers probably added 10,000 jobs in September, after cutting 9,700 positions in August, the statistics bureau will say on Oct. 13, according to the median forecast of economists surveyed by Bloomberg News.

The so-called Aussie has climbed 1.6 percent in the past week, the best performer among 10 developed nation peers tracked by Bloomberg Correlation-Weighted Currency Indexes.

The Malaysian ringgit gained for a fifth day against the dollar, poised for its longest winning streak since Aug. 15, before reports forecast to show signs of economic recovery.

Investment inflows “will be good as economic growth is projected to be better,” said Akira Banno, a treasury adviser at Bank of Tokyo-Mitsubishi UFJ in Kuala Lumpur.

Government data due tomorrow will show Malaysia’s industrial output rose 0.5 percent from a year earlier in August after declining 0.6 percent in July, based on the median forecast in a Bloomberg News survey of economists.

The ringgit appreciated 0.6 percent to 3.1413 per dollar. It earlier reached 3.1355, the strongest level since Sept. 28.

--Editors: Nate Hosoda, Benjamin Purvis

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net.

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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