The dollar headed for a weekly gain against the euro and British pound on speculation U.S. efforts to stimulate the economy won’t be enough to avoid a prolonged recession, spurring demand for the relative safety of Treasuries.
The yen was set for its first weekly gain versus the euro in three weeks as U.S. lawmakers agreed on $789 billion of spending and tax cuts, smaller than the $838 billion the Senate approved earlier.
The dollar may climb for a seventh week against the Swiss franc as Treasury Secretary Timothy Geithner takes time to work out the details of a strategy to aid the financial industry.
“Risk aversion will not fade unless we know more concrete details of the U.S. plans,” said Seiya Nakajima, chief economist at Japanese trading house Itochu Corp. in Tokyo. “This will keep interest in safe havens alive.”
The dollar traded at $1.2911 per euro at 7:35 a.m. in London from $1.2861 late in New York yesterday and from $1.2940 on Feb. 6. The yen was at 117.48 versus the euro from 116.95 yesterday and 118.85 a week earlier. The U.S. currency traded at 91.00 yen from 90.94 yen yesterday and 91.89 yen last week.
Against the greenback, the pound declined to $1.4376 from $1.4787 on Feb. 6 and the franc was at 1.1587 versus 1.1621 a week earlier. Sterling also weakened to 89.81 pence per euro from 87.51 pence last week.
The yield on the 10-year Treasury note was 2.80 percent, according to BGCantor Market Data. The 2.75 percent security maturing in February 2019 traded at a price of 99 19/32. Ten-year yields fell 0.20 percentage point this week, the most this year.
G-7 Meeting-The U.S. Congress is set to give final approval today on the economic stimulus package after lawmakers worked out last-minute disagreements over executive compensation and taxes. The House and Senate scheduled votes on the measure.
Finance ministers and central bankers from the Group of Seven major industrial nations meet in Rome today and tomorrow. They plan to discuss exchange-rate developments, a U.S. Treasury official told reporters on Feb. 11 in Washington on condition of anonymity, declining to discuss specific currencies.
Japan’s Finance Minister Shoichi Nakagawa said today in Tokyo that he isn’t planning to bring up the subject of currencies at the meeting. Asian Stocks Rise Gains in the yen may be curbed on speculation an advance in Asian equities will reduce demand for the currency as a haven. The Nikkei 225 Stock Average climbed 1 percent and the MSCI Asia- Pacific Index of regional shares rose 1.1 percent today.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock price changes that is used as a measure of risk aversion, fell 7.4 percent to 41.25 yesterday.“The recent moves of such indicators as VIX and the rise in stocks seem to suggest risk aversion is gradually easing,” said Akio Yoshino, chief economist at Societe Generale Asset Management Ltd. “This should give investors less reason to buy the yen.”
The euro may weaken on speculation Europe’s economies shrank by the most in 13 years. Gross domestic product contracted 1.3 percent in the fourth quarter from the previous three months, the most since June 1995 when Bloomberg began compiling the data, according to a survey of economists before the European Union’s statistics office releases the numbers at 11 a.m. in Luxembourg.
‘Already Under Pressure’“A stream of European data including the fourth-quarter GDP will be released, and downside surprises are likely to be common place,” analysts led by Hans-Guenter Redeker, London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a research note yesterday. “The euro is already under pressure.”
BNP Paribas forecasts the euro will decline to $1.20 and to 94 yen by the end of June.Investors added to bets the ECB will reduce the 2 percent benchmark rate at its March 5 meeting. The yield on the three- month Euribor interest-rate futures contract due in March fell to 1.70 percent today from 1.715 percent on Feb. 6.
The pound was poised for its first weekly loss against the euro since Jan. 23 after Bank of England Governor Mervyn King said this week the economy is in a “deep recession” that may spur policy makers to lower the 1 percent benchmark rate again.
The central bank this week cut its forecasts for U.K. gross domestic product and inflation and said the risks to economic growth are “heavily to the downside.”“The pound is still seen vulnerable as it lugs around the attendant baggage of a slumping economy and further interest rate cuts,” Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore, wrote in a research note today.