(Bloomberg) -- The yen advanced to a six-week high against the euro after the World Health Organization said the swine flu outbreak is no longer containable, triggering demand for safer assets. Japan’s currency also gained for a fifth day versus the dollar after the Wall Street Journal reported that Bank of America Corp. and Citigroup Inc. are being told by regulators they need more capital, signaling the global financial crisis may be far from over. The South Korean won and Malaysian ringgit led Asian currencies lower on concern the swine flu will curb tourism and deepen the global recession.
Japan’s currency advanced to 124.56 per euro as of 7:44 a.m. in London, from 126.14 in New York yesterday. It earlier rose to 124.54, the strongest level since March 12. The yen climbed to 95.70 per dollar from 96.77, after reaching 95.68, the highest since March 23. Europe’s single currency declined to $1.3019 from $1.3036.The won tumbled 1 percent to 1,356.95 per dollar, Indonesia’s rupiah dropped 0.7 percent to 10,875, and Malaysia’s ringgit weakened 0.7 percent to 3.6237.
Billions of Dollars
The yen rose for a third day against the euro after the Wall Street Journal said Bank of America’s capital shortfall comes to billions of dollars. Both banks are objecting to the Federal Reserve’s preliminary report on the tests, and are expected to mount a detailed rebuttal, the Journal said, citing people familiar with the matter. Treasury Secretary Timothy Geithner indicated on April 21 that stress tests would show most of the 19 biggest U.S. banks have enough capital and said those needing more may convert government preference shares into common stock as well as seeking investments from private sources. Regulators are scheduled to release results of the tests on May 4.
A slide in Asian stocks also spurred demand for the yen. The MSCI Asia Pacific index of shares dropped 2 percent and the Nikkei 225 Stock Average slipped 2.7 percent.
Swine Flu
The yen advanced against all 16 of the most-traded currencies after the spread of swine flu beyond Mexico promoted the WHO to increase its global pandemic alert to the highest since it adopted the warning system in 2005. The number of cases in the U.S. has risen to 40 and Mexico’s toll of flu-related deaths reached 149. U.S. officials yesterday recommended citizens avoid nonessential travel to Mexico, and the European Union told travelers to avoid outbreak areas.
The euro climbed to a five-month high against the yen on April 6, having gained 11 percent between March 2 and April 6 on optimism the worst of the global financial turmoil may be over. The Australian dollar jumped nearly 19 percent against Japan’s currency between March 2 and April 13.
Mexican Peso
Mexico’s peso was little changed at 14.035 per dollar today in thin Asian trading from 14.0505 yesterday. It earlier fell to 14.1007, the weakest level since April 1. The peso slid against all of the other major currencies tracked by Bloomberg yesterday as the government shut schools until May 6 and close public events to contain swine flu.The euro fell for a second day versus the dollar on speculation ECB policy makers will this week cut interest rates and signal they may pump additional money into the economy to push down borrowing costs and counter the recession.The ECB stands “ready to use unconventional measures of quantitative easing” to increase the flow of credit, governing council member Ewald Nowotny said yesterday in New York. Executive board member Lorenzo Bini Smaghi will speak in Geneva today and fellow board member Juergen Stark will speak in Siegen, Germany tomorrow.
‘Downside Risk’
Investors in the past week added to bets the ECB will cut its 1.25 percent target lending rate at its next meeting on May 7. The implied yield on the three-month Euribor interest-rate futures contract for June delivery fell to 1.29 percent today from 1.335 percent a week ago.The New Zealand dollar declined for a second day against the greenback and the yen on speculation the central bank will lower interest rates at a policy meeting this week.There is a 40 percent chance of a half percentage point cut at the April 30 policy review, according to a Credit Suisse index based on swaps trading.Benchmark rates are 3 percent in New Zealand and Australia, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ assets. New Zealand’s dollar dropped 2.1 percent to 55.38 U.S. cents from yesterday in New York. It declined 3.1 percent to 53.02 yen.
Rupiah, Ringgit Lead Drop in Asian Currencies on Swine Flu Risk
(Bloomberg) -- Asian currencies fell, led by Indonesia’s rupiah and Malaysia’s ringgit, on concern that the spread of swine flu will prolong a global recession, deterring investment in emerging-market assets.The rupiah and the ringgit slid after the World Health Organization raised its global pandemic alert, saying the disease, which has claimed 149 lives so far in Mexico, is no longer containable. South Korea’s won weakened for a second day against the dollar after the Ministry of Health, Welfare and Family Affairs said South Korea is testing a patient suspected of having the virus.The rupiah fell 0.6 percent to 10,865 per dollar at 9:40 a.m. Hong Kong time, while the ringgit slid 0.5 percent to 3.617. The won fell 0.4 percent to 1,348.50 and Taiwan’s dollar fell 0.2 percent to NT$33.80.Seven of Asia’s most-active currencies excluding the yen declined as investors sought refuge in the greenback. The ICE’s Dollar Index, a gauge of its trade-weighted value, was little changed at 85.678, after rising 1.2 percent yesterday.
Swine Flu
Swine influenza cases in the U.S. doubled to 40 and Spain yesterday reported its first infection. The European Union has told travelers to avoid outbreak areas, and Australia, Japan, Singapore and South Korea are screening air passengers.
Bank Negara Malaysia will cut its overnight rate to 1.75 percent from 2 percent tomorrow, according to six of 16 economists in a Bloomberg News survey. Four forecast a reduction of half a percentage point and the remainder predicted no change. Policy makers have trimmed the benchmark three times since October, saying the economy may contract 1 percent this year.Declines in the won were limited on signs the Korean government’s $37 billion stimulus package, coupled with record interest-rate cuts, are bolstering the economy. The Kospi stock index advanced 0.8 percent as a central bank report showed consumer confidence rose to 98, the highest in at least nine months.
Economic Strength
The Taiwan dollar was bolstered as Goldman Sachs Group Inc. raised its 2010 economic growth forecast for Taiwan to 3.5 percent from 2.5 percent as improved relations with China start to benefit businesses. Action’s Cohen expects the Taiwan dollar to strengthen to NT$32 by the end of the year as regional exports increase on a revival in global demand.Elsewhere, the Philippine peso dropped 0.3 percent to 48.82, the Thai baht fell 0.2 percent to 35.52 and the Chinese yuan was little changed at 6.8277 per dollar.
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