The dollar climbed to two-month highs against the yen and euro as concern the conflict between North and South Korea will escalate and Europe’s sovereign-debt burdens are worsening boosted the U.S. currency’s refuge appeal.
The greenback gained against all of its 16 most-traded counterparts as North Korea’s state-run news agency said planned naval exercises by South Korea and the U.S. moved the peninsula “closer to the brink of war.” South Korea’s won weakened the most on a daily basis in five months. The euro slumped as Irish officials raced to complete a deal for an international aid package before financial markets reopen next week.
“That’s adding to the safe-haven appeal of the dollar,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “The proximity to the crisis might be something that’s keeping investors wary of the Japanese yen.”
The dollar advanced 0.6 percent to 84.09 yen at 4:55 p.m. in New York, from 83.60 yen yesterday. It touched 84.19, the strongest level since Sept. 28, and gained 0.7 percent for the past five days, its fourth weekly advance. The yen has retreated 4.6 percent in November, the first monthly decline since April.
The Dollar Index advanced for a third week, the longest run of gains since May. The measure, which tracks the greenback against currencies of six major U.S. trading partners, reached 80.522 today, the highest level since Sept. 21. The index is up 4 percent in November.
The euro slid 0.9 percent to $1.3240, after earlier reaching $1.3201, the lowest level since Sept. 21. The single currency fell 3.2 percent this week and 5.1 percent this month. It declined 0.4 percent to 111.30 yen, from 111.69 yen yesterday. It closed at 114.23 yen on Nov. 19.
The euro declined for the week versus 15 of its 16 major peers after the Financial Times Deutschland reported that euro-area policy makers are pushing Portugal to seek assistance from a 750 billion-euro ($992 billion) bailout fund to help shield Spain from debt-crisis contagion. Policy makers succeeded in getting Ireland to seek a bailout this week.
“The euro is falling now on the spillover risk, as it has already discounted the bad news from Ireland,” said Kathy Lien, director of currency research at online currency trader GFT Forex in New York. “The problems within Europe are very fundamental and are not going away.”
The 16-nation single currency has slid 2.5 percent over the past month in a measure of 10 developed-nation counterparts, Bloomberg Correlation-Weighted Currency Indexes show. The dollar is up 2.6 percent, while the yen has dropped 1 percent.
The Standard & Poor’s 500 Index fell 0.8 percent today, and the MSCI World Index of equities dropped 1.1 percent.
President Barack Obama dispatched the USS George Washington to take part in military drills scheduled between Nov. 28 and Dec. 1 in the Yellow Sea off the western coast of the Korean peninsula.
“Japan is geographically close” to the Koreas, said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd. “This may be causing some buying of the dollar and selling of the yen.”
The U.S. sent the aircraft carrier in a show of strength after North Korea shelled a South Korean island on Nov. 23. North Korea warned that any “escalated confrontation” will lead to war, the state-run news agency KCNA said in an e-mailed statement.
South Korea’s won declined 1.9 percent to 1,159.63 per dollar, the biggest daily drop since June 25.
“The fact that tensions are still high is just making the market more and more nervous and this is adding to the risk-off behavior,” said Paul Mackel, a currency strategist at HSBC Holdings Plc in London.
Borrowing costs for the euro region’s most indebted nations are surging as Ireland’s capitulation in accepting a bailout to support its banking industry stoked speculation that other countries will also seek aid.
The extra yield investors demand to hold Irish 10-year bonds instead of their German counterparts rose to a euro-era record 6.56 percentage points today, while the spread of Portugal’s 10-year debt over German bunds climbed to 4.45 points. The Spanish-German 10-year spread reached 2.64 percentage points, according to Bloomberg generic data. That’s the most since the introduction of the euro in 1999.
“The concern in Europe now is that there is no real end game in sight,” Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, said in an interview on Bloomberg Radio. “The announcement from Ireland last weekend in regard to formally requesting aid, that in itself has done nothing for stemming the evidence of contagion that has becoming more and more apparent by the day.”
Australia’s dollar weakened for a second day after Reserve Bank Governor Glenn Stevens said his country’s interest rate is appropriate, damping prospects for early increases.
The Australian dollar tumbled 1.7 percent to 96.43 U.S. cents and touched 96.13 cents, the lowest level since Oct. 5. It slid 1.1 percent to 81.09 yen.
The Canadian dollar dropped the most in a month against the greenback as investors turned away from higher-yielding assets. The currency depreciated as much as 1.5 percent, the biggest intraday slide since Oct. 19, to touch C$1.0247 per U.S. dollar.
The Swiss franc added 0.6 percent to 1.3286 per euro. Investors typically buy the franc for its perceived safety.