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Euro Gains Versus Yen on Prospect of Combined Rescue Fund

The dollar fell against its higher-yielding counterparts as Federal Reserve Chairman Ben S. Bernanke said accommodative monetary policy is still needed to reduce U.S. unemployment.

The euro strengthened to an almost one-month high against the U.S. currency as Germany said it may back plans to increase the debt-crisis rescue funds before the region’s finance ministers meet March 30. The Swiss franc fell against the euro after Swiss Economy Minister Johann Schneider-Ammann said he would “generally like” the franc to weaken toward 1.35 or 1.40 versus the euro. The Australian dollar and South African rand rallied versus the yen as global stocks and commodities advanced.

“The concern has been that the Fed may have to retract its January statement where it said exceptionally accommodative policy through 2014,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “Bernanke’s speech seems to have put that to rest. There had also been nagging doubts about the strength of the firewall for Europe. Both had crystal-clear implications for euro.”

The dollar fell 0.7 percent to $1.3359 per euro at 5 p.m. New York time, the least since Feb. 29. It rose 0.6 percent to 82.82 yen, after gaining as much as 0.8 percent. The Japanese currency fell 1.3 percent to 110.65 per euro.

Swiss Currency

The franc fell 0.1 percent to 1.20604 per euro, the biggest intraday move in a week.

“It would be fatal if the minimum exchange rate was suddenly removed,” Schneider-Ammann said, according to comments posted on Swiss television’s website today. He referred to the Swiss central bank’s franc cap of 1.20 versus the euro. Asked whether the ceiling should be raised, he said while the central bank is “independent,” the purchasing power parity “is higher” than 1.20.

The yen has fallen against all its most-traded counterparts year-to-date, declining 7.2 percent against the dollar and 9.9 percent versus the 17-nation shared currency. The dollar is the second-worst performing major currency tracked by Bloomberg this quarter. It has fallen 3 percent against the euro and 9.1 percent versus the Mexican peso.

Japan’s currency declined against all its major counterparts today as investors sold the yen to invest in higher-yielding counterparts. The so-called carry trade selling the yen to purchase the Brazil’s real, Australia’s dollar and Mexico’s peso returned 1 percent today.

Aussie Gains

The Australian dollar added 0.6 percent to $1.0534 and 1.2 percent to 87.25 versus the yen. The rand gained 1.3 percent to 7.5815 per dollar, as its largest export gold advanced 1.7 percent.

The Standard & Poor’s 500 Index advanced 1.4 percent. The S&P GSCI Index of 24 raw materials gained 0.3 percent.

The decline in U.S. unemployment may reflect “a reversal of the unusually large layoffs that occurred during late 2008 and over 2009,” Bernanke said in a speech today in Arlington, Virginia. “To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.”

“The whole environment should be really quite ideal for risk and equities, given that the Fed is still very focused on levels in terms of the unemployment rate,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London.

Fed Stance

Foreign-exchange traders, faced with lower volatility and record-low interest rates in the U.S., Europe, the U.K. and Japan, are searching for returns as far afield as Kazakhstan and Nigeria. The JPMorgan G7 Volatility Index has fallen to 10.04 percent from 12.37 percent in January, reducing money managers’ ability to exploit price moves.

Investec Asset Management Ltd., which trades currencies of nations from Colombia to Uganda, said demand for assets in so-called frontier markets increased in the past six months. The Cambridge Strategy (Asset Management) Ltd. invested in the Nigerian naira from December to February. Money manager Adrian Lee & Partners will add positions in six currencies, including Kazakhstan’s tenge and the Kenyan shilling by the end of the second quarter.

European Finance

Chancellor Angela Merkel said that Germany may back plans for the temporary and permanent euro-area rescue funds to run in parallel. Ministers are due to discuss plans to combine the temporary European Financial Stability Facility and its permanent successor from July, the European Stability Mechanism in Copenhagen this week.

European sentiment was also buoyed after Munich-based Ifo institute’s German business climate index rose more than expected.

“Looking forward to the European finance ministers possibly increasing the size of the bailout facility, that adds to the risk-positive environment and the tendency will be to buy some of the high-yielding, risk-sensitive currencies,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York.

The euro climbed 0.4 percent year-to-date, according to Bloomberg Correlation Weighted Indexes that track 10 developed-market currencies. The yen has weakened 10.6 percent during the period, while the dollar fell 2.9 percent.

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