The euro fell to an eight-week low against the dollar and had its biggest decline in almost two months versus the yen on speculation the European Central Bank will signal concern today that economic growth is slowing.

The currency declined for a second day after the yield spread between two-year German notes and Treasuries narrowed as investors bet the sputtering economy will force the ECB to cut interest rates this year. Policy makers will leave the key rate on hold today, according to a Bloomberg survey, and ECB President Jean- Claude Trichet will give a press conference later. The yen rose as slumping Asian stocks prompted investors to sell higher-yielding holdings funded in the Japanese currency.

``The euro is falling today because investors are positioning for a possible shift in rhetoric during the conference,'' said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt. ``They might emphasize more on downside risks to growth this time.''

The euro traded at $1.5344 at 9:37 a.m. in London, from $1.5392 yesterday in New York and fell to $1.5285 earlier, the lowest since March 11. It also slipped to 159.42 yen, from 161.23 yesterday, after trading at 159.05 yen, the weakest since April 14. The yen rose to 103.78 versus the dollar, from 104.73.

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Slovakia is likely to clear a major hurdle Wednesday toward adopting the euro currency next year but will probably be the last of a group of EU newcomers lining up to join for several years at least.

The biggest economies of eastern Europe Poland, the Czech Republic and Hungary have cooled their euro plans rather than strain to shape up their public finances, meet tight membership standards and give away control over their currencies.

For Slovakia, it would be a point of pride to join the 15-nation euro-zone on Jan. 1, 2009 after a hard road away from communism during the 1990s that saw it isolate itself for a time and fall behind its neighbors, particularly the Czech Republic that it split away from in 1993.

Economists say it is all but certain to get the nod from the European Commission and the European Central Bank on Wednesday as long as EU officials don't see future inflation as a major problem. Slovak inflation is forecast to rise above the euro average this year and next year.

"We were always considered the ugly duckling of Europe," said Martin Chren, director of the Bratislava-based think tank, the F. A. Hayek Foundation.

The "smaller, poorer brother" of the Czech Republic is now the "shining star" of central Europe, he says, thanks to six years of market-oriented reforms such as a flat tax rate and labor market policies that have boosted growth and attracted foreign investment such as French carmaker PSA Peugeot Citroen.

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The Japanese yen may rise to 100 per dollar in the next three months because investors will cut holdings of higher-yielding assets as housing markets and economic growth slow further, according to UBS AG.

The forecast from UBS, the second-biggest foreign-exchange trader, would see the yen gain almost 5 percent from today's levels to near a 12-year high of 95.76 reached in March. Barclays Capital, Citigroup Inc. and Lehman Brothers Holdings Inc. this month maintained their estimates for the yen to strengthen through the third quarter, with Lehman the most bullish.

Japan's currency held gains today after Federal Reserve Chairman Ben S. Bernanke said rising mortgage foreclosures may push home prices down, hurting the broader economy. U.K. house prices posted their first decline since 1996 in April compared with a year earlier, HBOS Plc, the country's biggest mortgage lender, said on May 2.

``We maintain our outlook for a generally firm yen,'' Ashley Davies, a currency strategist in Singapore at UBS, said in an interview confirming a research report dated today. ``We've still got ongoing macroeconomic risks as indebted households will scale back. Slowing global growth will raise a lot of questions.''

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THE JSE's rand futures market will be opened up, Finance Minister Trevor Manual announced in his Budget speech on February 20.

With these few words he opened up a huge market previously only available to a few select institutions. Now all corporate entities -- including trusts, close corporations, private companies and partnerships -- will be able to trade in currency futures, with no restrictions on the value traded.

 
But what are currency futures, and where do they fit into financial markets? Currency futures are agreements between two parties, where one commits to buy (go long) a currency and another to sell (short) a currency on a specified future date. (A long currency future holder is long the US dollar and short the rand. A short currency future holder is short the dollar and long the rand.)

Now that the market has been opened up, currency futures will begin to compete with the existing over-the-counter forward market, as although both products allow investors to successfully hedge against currency risk, currency futures give the client more freedom of choice. Corporates do not need permission to trade currency futures, nor do they have to report their currency future trades to the South African Reserve Bank.

Currency futures are standardised JSE (Yield-X) exchange products, ensuring transparency and liquidity for the client. This represents a major step forward for South African financial markets. They are used primarily to hedge (remove) the risk of existing or expected currency exposure, or speculate when the belief is that currency rates will change.

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The dollar rose to a five-week high against the euro after a government report showed U.S. employers eliminated fewer jobs in April than forecast, indicating the labor market is weathering the economic slowdown.

The currency posted a second weekly gain versus the euro after the Federal Reserve cut interest rates on April 30 and said ``substantial'' easing since September would help foster growth. The yen fell against the Brazilian real and the South African rand as the jobs report encouraged investors to buy higher-yielding assets financed in Japan.

``It's pretty likely we've seen the lows in the dollar,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. ``You've got a market that has been buying dollars, and certainly it got a nice reinforcement.''

The dollar increased 0.3 percent to $1.5424 per euro at 5 p.m. in New York, from $1.5474 yesterday. It touched $1.5361, the highest level since March 24. The dollar rose 0.9 percent to 105.40 yen, from 104.43 yesterday. It touched 105.70 yen, the strongest since Feb. 28. The euro rose 0.6 percent to 162.53 yen, from 161.57 yen.

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Reserve currency status is like your health: Abuse it, and you risk losing it.

With the dollar's 45 percent decline against the euro during the past six years and its 37 percent drop on a trade-weighted basis, there is a growing concern that the greenback's six-decade reign as the world's most important currency may be ending.

It's not. The dollar is the world's reserve currency, and absent some unexpected exogenous shock, will probably remain so for some time.

Nonetheless, the dollar's premier status is under threat, especially as a store of wealth, by both foreign governments and private investors. Also, companies are using it less as a currency in which to invoice and settle international trade transactions.

Why care? Reserve currency status allows the U.S. government to borrow in its own currency, lets the U.S. run large trade deficits, and helps the government and American companies to fund themselves at low interest rates. It makes it easier for U.S. companies to do business and increases the international demand for U.S. assets.

Moreover, as the specie of choice, the dollar is blessed with seigniorage, the interest-free loan America receives from the hundreds of billions of dollars held overseas and hoarded as misfortune insurance.

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Emerging markets led a 40 percent gain in currency trading to $175 trillion last year as banks relied on foreign exchange for earnings during a global credit- market crisis, according to a Euromoney survey.

Transaction volume in currencies increased 117 percent in Asia, 254 percent in central and eastern Europe, 42 percent in the Middle East and 145 percent in Latin America in 2007, Euromoney said in a statement on its Web site yesterday.

``A lot of North American funds and real-money people are moving to or setting up operations in Asia,'' said Luke Waddington, head of electronic markets and prime brokerage in Tokyo at Royal Bank of Scotland Group Plc, the fifth-largest foreign-exchange trader. ``They're looking at Asian equities and assets as good options'' for foreign-exchange business, he said.

The Euromoney survey was based on the responses of almost 10,000 respondents, who were asked to provide details of foreign exchange dealings through banks.

Royal Bank of Scotland conducted 7.3 percent of dealings between banks and customers, the survey showed. Deutsche Bank AG was the top currency trader, with a 21.7 percent share. Securities firms often use the Euromoney rankings as a marketing tool, arguing that a bigger currency bank can offer better prices and services.

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The dollar rose against the euro and traded near a two-month high against the yen on speculation the Federal Reserve will signal tomorrow that it's close to pausing interest-rate cuts.

The U.S. currency headed for its first monthly advance versus the yen and euro since December as traders increased bets the Fed will stop lowering borrowing costs after a quarter- percentage point reduction tomorrow. New Zealand's dollar slid after a government report showed the nation's trade deficit unexpectedly widened.

``Basically, I think the Fed will be indicating that if we are not at the bottom, we're very close to the bottom of the rate cycle,'' said Simon Derrick, London-based head of currency strategy at Bank of New York Mellon Corp. ``The dollar is on the turn.''

The dollar was at $1.5581 per euro by 9:52 a.m. in London, from $1.5657 yesterday in New York, for a monthly gain of 1.3 percent. It was little changed at 104.23 yen. The euro fell to 162.39 yen from 163.11.

Futures on the Chicago Board of Trade show a 22 percent chance that the Fed will hold the target rate for overnight lending between banks at 2.25 percent tomorrow, compared with 6 percent odds a week ago. The balance of bets is for a reduction of a quarter-percentage point. There is a 68 percent probability the rate will be held at that level at the Fed's June meeting.

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China should keep its currency the yuan stable to curb market expectations that lead to huge speculative money flows, state media reported on Monday, citing a government economist.

"(We should) stabilise market expectation for the exchange rate and give the market a relatively stable signal on the exchange rate", Xia Bin, a government economist with the state council, was quoted as saying in the China Securities Journal.

"Adjustment to the foreign exchange policy should be a key task," Xia said.

China's currency breached the key psychological level of 7.0 yuan to the dollar earlier this month.

It appreciated more than four percent against the dollar so far this year and about 18 percent against the US unit since July 2005, when it was cut loose from a de-facto peg to the greenback.

The rise has come as Washington has accused Beijing of undervaluing the yuan, giving Chinese exporters an unfair advantage and contributing to a massive trade imbalance between the two nations.

At the same time expectations that the yuan will continue to gain has posed problems for China's central bank as it has struggled to soak up the excess money betting the currency will go up.

Hot money flowing into China surged in the first quarter to 80 billion dollars, according to government economists.

The central bank set the yuan Monday at 6.9980 to the US unit.

  U.K. government bonds fell for a second week, with two-year note yields rising to the highest level in four months, after gains in stocks around the world reduced demand for safer assets.

Gilts dropped on speculation the Bank of England will slow the pace of interest-rate cuts on concern inflation is accelerating. Bonds stayed lower even after a government report yesterday showed Europe's second-biggest economy grew at the slowest pace in three years between January and March as higher credit costs and falling house prices choked expansion.

``It's a bad week for bonds as people are unwinding safe- haven bids,'' said Charles Diebel, head of European interest-rate strategy in London at Nomura International Plc. ``There's speculation the Federal Reserve will soon pause and inflation will delay rate cuts in the U.K. But my view is that the worst is far from being over.''

The yield on the two-year gilt rose 20 basis points this past week to 4.55 percent by 5 p.m. yesterday in London. The yield earlier climbed to 4.64 percent, the highest level since Dec. 18. The price of the 4.75 percent security due June 2010 fell 0.41, or 4.1 pounds per 1,000-pound ($1,983) face amount, to 100.40. The 10-year bond yield gained 7 basis points to 4.79 percent. Yields move inversely to bond prices.

Gilts pared losses yesterday after a survey showed U.S. consumer confidence fell more than forecast in April to its lowest level in 26 years.

The Dow Jones Euro Stoxx 600 Index climbed for a second week, gaining 0.3 percent, while the U.K.'s FTSE 100 Index rose 0.6 percent.

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