Wednesday, May 28, 2008


Yen Falls to 1-Month Low as U.S. Stocks Gain, Spur Carry Trade

May 27 (Bloomberg) -- The yen fell to a one-month low against the euro and dropped versus the dollar as an advance in U.S. stocks encouraged investors to add to holdings of higher- yielding assets funded in the Japanese currency.

The yen declined against the Australian and the New Zealand dollars, two favorites of so-called carry trades. The Australian dollar traded close to a 25-year high versus its U.S. counterpart, while the kiwi dollar gained a sixth straight day. The U.S. dollar extended gains versus the yen and euro as new- home sales in the U.S. unexpectedly rose in April.

``We are seeing improvement in risk appetite, and that's weakening the yen,'' said Samarjit Shankar, director of global strategy for the foreign exchange group in Boston at Bank of New York Mellon. The firm is the world's largest custodian bank, with more than $20 trillion in assets under administration.

The yen touched 163.89 per euro, the weakest since April 28, before trading at 163.82 at 10:07 a.m. in New York, from 163.10 yesterday. It declined to 104.29 per dollar, from 103.43. The euro fell to $1.5708, from $1.5770 yesterday, after rising to $1.5818, the highest level since April 24.

The Standard & Poor's 500 Index rose 0.6 percent.

In the carry trade, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the difference between the two. The risk is currency moves erase those profits.

Japan's benchmark rate of 0.5 percent compares with a central bank rate of 4 percent in Europe, 2 percent in the U.S., 7.25 percent in Australia and 8.25 percent in New Zealand.

Euro's Reversal

The euro reversed gains versus the dollar after reports showed German consumer confidence fell more than economists forecast and French business confidence declined to the weakest in more than two years in May.

GfK AG's index for June declined to 4.9, from 5.6 in May, the Nuremberg-based market-research company said today. Economists in a Bloomberg survey predicted the gauge would fall to 5.7, from an initial May estimate of 5.9. An index of sentiment among 4,000 French manufacturers slid to 102, the lowest since December 2005, from 106 in April, the country's statistics office said.

``We see weakness developing in many aspects and that's why we are seeing a retreat'' from the euro, said Hans-Guenter Redeker, global head of currency strategy in London at BNP Paribas SA, France's biggest bank.

Consumer Prices Rise

Consumer prices in the euro region rose 3.5 percent in May, faster than the 3.3 percent gain the previous month, according to a Bloomberg News survey. The statistics office will release the figure on May 30.

The dollar extended gains as new-home sales in the U.S. rose 3.3 percent to an annual pace of 526,000 from a 509,000 rate the prior month that was the lowest in 17 years, Commerce Department data showed. A separate report today showed home prices dropped last quarter by the most in at least 20 years.

Confidence among U.S. consumers fell to the lowest level in more than 15 years. The Conference Board's confidence index declined more than forecast to 57.2, the lowest level since October 1992, from a revised 62.8 in April, the New York-based research group said.