Dollar Advances Versus Yen as Goldman, Lehman Beat Estimates

Dollar Advances Versus Yen as Goldman, Lehman Beat Estimates

March 18 (Bloomberg) -- The dollar rose versus the yen, snapping a four-day slide, as U.S. stocks rallied on stronger- than-forecast earnings from Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc.

The U.S. currency pared losses against the euro, after plunging to a record low yesterday following the fire sale of Bear Stearns Cos. The dollar is still down a fifth straight day against the euro as traders bet the Federal Reserve will cut interest rates as much as 1 percentage point today in an attempt to restore confidence to financial markets.

``The market is relieved that these two firms that are viewed as pillars of Wall Street survived the earnings season without major mishaps,'' said Michael Woolfolk, senior currency strategist in New York at the Bank of New York Mellon, the world's largest custodial bank with over $20 trillion in assets under administration. ``It's a relief for the dollar.''

The dollar rose to 98.28 yen at 10:20 a.m. in New York, from 97.33 late yesterday, when it touched the lowest since August 1995. The U.S. currency traded at $1.5785 per euro from $1.5729 yesterday, when it reached $1.5903, the weakest level since the euro started trading in 1999. The yen dropped to 155 per euro from 153.07. It fell against all 16 of the most-traded currencies as traders put on carry-trade bets funded by loans in Japan, where the benchmark rate is 0.5 percent.

Goldman, the world's biggest securities firm by market value, reported a smaller-than-estimated 53 percent drop in first-quarter profit. Lehman Brothers reported its smallest quarterly profit since 2003, yet still beat analysts' estimates.

Storm Weathered

The dollar fell to record lows against the euro on each of the past five trading days amid concern that losses from credit markets may erode the capital of Wall Street firms.

``The storm has been weathered,'' said Jeff Gladstein, global head of currency trading at AIG Financial Products in Wilton, Connecticut. ``The bulk of the dollar losses are in the market right now.''

The British pound rose to $2.020, from $1.999, after a U.K. government report showed inflation accelerated to a nine-month high in February, limiting the Bank of England's scope to cut rates. It also rose to 78.18 pence per euro from 78.69.

The yen lost 1.9 percent against the pound and New Zealand dollar as gaining stocks boosted confidence in carry trades, where investors buy high-yielding assets with loans from Japan, profiting from the difference in rates.

The Swiss franc, also used to fund carry trades, weakened against major currencies. Benchmark rates are 2.75 percent in Switzerland, 5.25 percent in the U.K., 7.25 percent in Australia and 8.25 percent in New Zealand.

Stocks Gain

The Standard & Poor's 500 Index rose 2 percent. Stocks in Asia and Europe also advanced.

``The yen is taking its cues from the equity market and its sentiment on risk,'' said Phyllis Papadavid, a London-based currency strategist at Societe Generale SA.

Implied volatility, a gauge of traders' expectations for future price swings, on one-month dollar-yen options fell to 18.75 percent, after reaching 24 percent yesterday, the highest since January 1999, according to Bloomberg data. Lower volatility tends to fuel demand for carry trades because it makes profit from the strategy more predictable.

The U.S. currency has slumped 9 percent against the yen in the past four weeks as losses in credit markets deepened. Japan's Finance Minister Fukushiro Nukaga said the dollar's decline is ``excessive.''

Nukaga's Concern

Nukaga expressed concern about currency movements for a second day and Kyodo News reported that Prime Minister Yasuo Fukuda is seeking contact with other countries about the dollar's drop. Nippon Steel Corp. said yesterday the surging yen poses a threat to earnings.

``I'm concerned with when the U.S. dollar will reach a bottom, and what monetary policies the U.S. will take,'' China's Premier Wen Jiabao told a press conference, promising ``forceful'' steps to damp inflation. The yuan traded at 7.0830, close to the highest since the end of its dollar link in 2005.

The South Korean won gained 1.5 percent to 1,014 per dollar after Deputy Finance Minister Shin Je Yoon said the central bank will take action against the currency's decline if the market doesn't ``stabilize.'' The currency fell 7.8 percent against the dollar this year and 19 percent versus the yen.

Traders see a 90 percent likelihood the Fed will cut its target rate by 1 point to 2 percent at today's meeting, futures on the Chicago Board of Trade showed. There is a 10 percent chance of a cut to 2.25 percent. The Fed unexpectedly lowered the rate it charges commercial banks for loans by a quarter- point to 3.25 percent on March 16. The decision will be announced at about 2:15 p.m. New York time.

Global stocks slumped yesterday after the Fed helped arrange the purchase of Bear Stearns by JPMorgan Chase & Co. for about 7 percent of its market value as of March 14.

The U.S. currency has lost 15 percent against the euro and 17 percent versus the yen in the past year as the worst housing slump since 1991 forced the Fed to cut its benchmark rate 2.25 percentage points.