Dollar Heads for Weekly Decline Against Euro on Yield Demand

June 26 -- The dollar fell, heading for its biggest weekly loss against the euro in a month, on speculation U.S., European and Chinese central banks’ efforts to stabilize the global economy will boost demand for higher-yielding assets.

The yen slid for a fourth day against the Australian dollar after gold and crude oil rose yesterday, adding to optimism the South Pacific nation’s economy is recovering. The Swiss franc traded near a three-month low against the euro on bets the country’s central bank boosted sales of the currency to support the economy.

“We had a strong performance in commodity prices,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. “Equities also performed very well, which is very supportive of investors’ sentiment generally” to seek higher- yielding currencies.

The dollar traded at $1.4035 versus the euro at 9:18 a.m. in Tokyo from $1.3988 yesterday in New York. The yen was at 134.33 per euro from 134.22. The dollar fetched 95.71 yen from 95.95 yen. Australia’s currency bought 80.62 U.S. cents from 80.25 cents yesterday, and traded at 77.17 yen from 77.00 yen.

Gold futures for August delivery yesterday rose $5.10, or 0.5 percent, to $939.50 an ounce on the New York Mercantile Exchange’s Comex division. Crude oil for August delivery rose $1.56, or 2.3 percent, to settle at $70.23 a barrel.

Gold is Australia’s third-most valuable raw material export, and crude oil is its fourth-most valuable.

Weaker Yen

Japan’s currency slid 1.7 percent to 49.44 versus the Brazilian real yesterday and the dollar declined 0.5 percent to 8.0169 South African rand as central banks’ actions encouraged investors to borrow in nations with low interest rates and buy assets where returns are higher. The Bank of Japan’s 0.1 percent target lending rate compares with 9.25 percent in Brazil and 7.50 percent in South Africa.

The dollar rose earlier yesterday against the yen after the Federal Open Market Committee said in its statement on June 24 that the central bank doesn’t plan to increase its $1.75 trillion bond-buying program and the pace of economic contraction is slowing.

“The Fed sounded a slightly more hawkish note than expected,” analysts led by David Woo, London-based global head of currency strategy at Barclays Capital, wrote in a research note yesterday. “The FOMC statement led to dollar gains. There may be some further upside in the short term.”

Federal Reserve

The U.S. central bank held the target rate for overnight lending between banks in a range of zero to 0.25 percent for a fourth consecutive meeting.

The Fed said yesterday it will let one of its emergency programs expire and trim two others in a sign that improving financial markets allow a first step toward ending its unprecedented interventions.

U.S. consumer spending increased 0.3 percent in May after declining 0.1 percent in the previous month, according to the median forecast of 76 economists surveyed by Bloomberg News. The report from the Commerce Department is due later today.

The European Central Bank said on June 24 it will lend banks 442 billion euros ($619 billion) for 12 months, the most it ever allotted in an auction. In China, the People’s Bank said yesterday it will maintain a “moderately loose” monetary policy to support economic recovery.

Weaker Franc

The franc traded at 1.5302 against the euro two days after traders said the Swiss National Bank intervened twice to weaken its currency. The franc declined as much as 2.4 percent on June 24 to 1.5380, the weakest level since March 19. The franc traded at 1.0928 per dollar after reaching 1.1023 two days ago, the weakest level since May 21.

The yen dropped yesterday as figures from the Ministry of Finance in Tokyo showed Japanese investors bought 336.1 billion yen ($3.5 billion) more in foreign bonds, stocks and short-term securities than they sold in the week ended June 20. The yen lost 2.3 percent versus the euro this quarter.

“Their domestic opportunities are much less attractive than many other parts of the world,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “At the first sign of stability, they’re always going to be more likely to send money overseas than any other country.”