Dollar Gains During Global Currency Rout

The yen (NYSE:FXY) declined the most against the U.S. dollar (NYSE:UUP) in three years as Japan (NYSE:EWJ) stepped into foreign-exchange markets to weaken the currency for the third time this year. The currency’s strong exchange rate, which climbed to a post-WWII record of 75.35 per dollar today, has been threatening the country’s exports.

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Japanese Finance Minister Jun Azumi ordered the intervention at 10:25 a.m. today, Tokyo time, because “speculative moves” in the currency failed to reflect the nation’s economic fundamentals. Though the “intervention has been very aggressive,” according to Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi in London, “The measures are only likely to provide temporary relief. In a very uncertain world, demand for safe-haven currencies like the yen will remain high and it is likely to remain strong.”

The yen (NYSE:FXY) declined 2.7% to 77.89 per dollar at 8:15 a.m. New York time, and was down as much as 4.6% today. The yen fell 1.7% to 109.10 per euro (NYSE:FXE), and fell 1.7% to 82.49 per Australian dollar (NYSE:FXA).

The euro (NYSE:FXE) also fell versus the dollar (NYSE:UUP) ahead of the Group of 20 summit later this week amid speculation that Europe’s leaders will have difficulty garnering financial support for their plans to enhance the region’s rescue fund. The euro fell 1% to $1.4007. The dollar rose against all of its major peers on refuge demand. Switzerland’s franc (NYSE:FXF) also gained 0.2% against the euro to 1.2193.

Both the yen and franc climbed to records this year as investors looked to the currencies as safe havens from the fiscal crises in the U.S. and Europe. However, the franc has weakened since September 6 when the Swiss National Bank imposed a ceiling of 1.20 per euro and resumed purchases of foreign exchange.

The yen and franc tend to strengthen in times of turmoil because current-account surpluses in Switzerland and Japan make them less reliant on foreign capital. Stronger local currency hurts the overseas competitiveness of exporters just when consumption is already taking a hit because of economic troubles, and also cuts the value of their overseas income when repatriated.

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Meanwhile, the euro owes its decline to China after the official Xinhua News Agency said the nation can’t play the role of “savior” to Europe and will not participate in the 1 trillion-euro bailout fund. On October 27, European leaders agreed to increase the European Financial Stability Facility’s firepower, but have been having trouble finding contributors outside the euro zone.

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