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Dollar, Yen Weaken as Asian Stocks Pare Losses, UN Calls for Korea Talks

The dollar and the yen weakened against the euro, snapping two-day gains, as Asian stocks pared losses and the United Nations called for talks with North Korea over its shelling of a South Korean island.

Europe’s currency rose from a two-month low versus the greenback as some analysts said Standard & Poor’s two-notch downgrade of Ireland’s debt rating was less than they expected, and as technical indicators signaled the common currency’s decline yesterday was too rapid. Australia’s dollar rallied after its steepest drop this month on optimism the nation’s growth will weather Ireland’s debt crisis and Korean tensions.

“Unless there’s another round, then the pressure is off and the whole North Korean issue becomes a distant memory very quickly,” said Robert Ryan, a Singapore-based currency strategist at BNP Paribas SA, referring to the Korean conflict. “As things settle down, we could see the risk currencies drift back up again.”

The dollar declined to $1.3396 per euro as of 6:55 a.m. in London from $1.3367 in New York yesterday, when it rose 2 percent, the most since Aug. 11. The yen weakened to 111.42 per euro from 111.16. The U.S. currency traded at 83.15 yen from 83.16 yen.

The MSCI Asia Pacific Index of shares trimmed its loss to 0.4 percent after earlier dropping as much as 1.3 percent.

Proposed Talks

The UN Command proposed North Korea’s military hold talks between officers at the rank of general over the country launched artillery shells at a South Korean island yesterday, the UN said today in an e-mailed statement.

South Korea said today it will supply “ample” liquidity in local and foreign currencies if needed to shield markets from any shocks after North Korea’s attack.

Fitch Ratings said it isn’t considering “negative rating action” for South Korea. Fitch, which recently affirmed South Korea’s A+ rating with a stable outlook, believes an escalation of hostilities is in nobody’s interests, Andrew Colquhoun, head of Asia-Pacific sovereigns, wrote today in an e-mailed response to questions.

The euro climbed from near a one-week low against the Swiss franc after S&P’s announced it has lowered Ireland’s rating.

“The magnitude of S&P’s downgrade of Ireland was probably more modest than some anticipated,” said Todd Elmer, Singapore- based head of Group-of-10 currency strategy for Asia ex-Japan at Citigroup Inc. “This can be viewed as a slight positive for the euro.”

Ireland Downgrade

S&P cut Ireland’s long-term sovereign rating to A from AA-, and the short-term grade was lowered to A-1 from A-1+, according to today’s statement. S&P said Ireland’s rating may be lowered again if negotiations over aid from the International Monetary Fund and European Union, or the nation’s budget fail to ease a funding crunch.

The euro traded at 1.3336 francs from 1.3330 yesterday, when it fell to 1.3296 francs, the weakest since Nov. 12.

The euro’s 14-day stochastic oscillator chart against the dollar declined to about 4 today, below the level of 20 that signals the 16-nation currency is poised to strengthen.

“The single currency’s slide yesterday was sharp and it looks oversold,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “We may see a bounce.”

Australian Dollar

Australia’s dollar gained versus the greenback and the yen on speculation the global economic remains on track, underpinning demand for higher-yielding assets.

Germany’s Ifo institute will say today its business climate index was at 107.5 in November, from 107.6 in October, which was the highest since May 2007, according to a Bloomberg News survey. U.S. consumer spending rose 0.5 percent in October after a 0.2 percent gain in September, another Bloomberg survey showed before today’s report.

“Developments in Ireland and the Koreas won’t change the fact that the global economy is recovering gradually,” said Masashi Murata, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of New York-based Brown Brothers Harriman & Co. “People should buy the Aussie against the euro. Commodity currencies are set to be bought on dips.”

Australia’s currency advanced 0.8 percent to 97.96 U.S. cents, after sliding 1.7 percent yesterday, the most since Oct. 19. The so-called Aussie rose 0.8 percent to 81.49 yen.

JPMorgan Chase & Co. said it was “turning bearish” on the yen for the first time in three years as the global economic recovery and central bank stimulus boost demand for risk assets.

Japan’s currency will fall against most of its major counterparts in 2011, with larger declines against commodity and emerging-market currencies, wrote Tohru Sasaki, head of Japan rates and foreign-exchange research and Junya Tanase, chief currency strategist, in a note to clients.

The yen is likely to decline to 115 per euro by the end of next year, JPMorgan predicted.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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