Yuan Heads for a Sixth Weekly Gain as China Curbs Inflation

Jan. 18 (Bloomberg) -- The yuan headed for a sixth weekly gain, the longest stretch in seven months, on speculation China is allowing the currency to appreciate to cool the economic expansion and bring inflation down from an 11-year high.

The currency's advance so far this year is the best since China abandoned a link to the dollar in July 2005. The nation has increased interest rates and told banks to set aside more funds as reserves to slow growth that is the fastest of any major economy by reducing the cash available for investment.

``The yuan will remain one of their key tools to fight inflation,'' said Sean Callow, a foreign-exchange strategist at Westpac Banking Corp. in Singapore. ``There will be bursts of strength then periods of slower gains.''

The yuan rose 0.18 percent to 7.2488 against the dollar this week as of 12:22 p.m. in Shanghai, the longest run of weekly gains since June 1. Westpac forecasts the currency will strengthen to 6.98 by year-end.

``While the yuan is treading water short term, I think we will see reacceleration over the next one-two months, unless there is a sharp, unexpected slowdown in China's economy, which virtually no one expects,'' Callow said.

`Some Progress'

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Everyone Loves Yen in Subprime World of Slowing U.S.

Jan. 15 (Bloomberg) -- The poorer the prospects for the U.S. economy, the more attractive Japan's yen is to Alan Eisner.

The hedge fund manager at Millennium Global Investments Ltd. in London says slower growth in the U.S., Japan's biggest export market, will cause Japanese investors to pare their overseas purchases. At the same time, the most volatile exchange rates this decade are forcing traders to buy yen to repay loans denominated in the currency.

``Now is a good time to buy,'' said Eisner, a senior managing director at Millennium, which has $13.3 billion in assets. ``When the world is doing well, then Japanese investors are very happy to invest abroad. When the world is not looking so great, the dynamic works the opposite way.''

Investors and traders are buying Japan's currency even as its broadest rally in eight years threatens to derail the nation's economy. The country relies on exports for most of its growth and has a 50 percent chance of recession, according to Goldman Sachs Group Inc. Automakers Mazda Motor Corp. and Nissan Motor Co. have tumbled more than 10 percent this month on concern that the rising currency will erode earnings.

``We're looking to buy yen,'' said Paresh Upadhyaya, a senior vice president at Putnam Investments LLC in Boston who helps manage $29 billion in currencies. ``The pillar of yen weakness, a buoyant global environment coupled with low volatility, has flipped.''

Best Since 1999 ............

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Dollar Trades Near Record Low Versus Euro on Fed Rate-Cut Bets

Jan. 15 (Bloomberg) -- The dollar traded close to a record low versus the euro before a report that economists expect will show U.S. retail sales growth stalled in December.

The dollar has declined versus 14 of the 16 most-active currencies this year as traders start to price in odds the Federal Reserve will cut benchmark borrowing costs by as much as 0.75 percentage-point this month. The Mortgage Bankers Association yesterday forecast U.S. existing home sales will fall 13 percent this year before recovering in 2009.

``Heightened expectations of the Fed cutting interest rates has been the theme that is the nemesis of the dollar,'' said John Kyriakopoulos, a Sydney-based currency strategist at National Australia Bank Ltd., the nation's largest lender. ``There are some downside risks around the retail sales number.''

The dollar traded at $1.4877 against the euro at 11:42 a.m. in Tokyo compared with $1.4869 yesterday in New York. It reached an all-time low of $1.4967 on Nov. 23 and may weaken to about $1.50 per euro this week, Kyriakopoulos said.

The U.S. currency was at 107.98 yen from 108.16 yen. The euro traded at 160.65 yen from 160.84 yen. The pound bought $1.9560 from $1.9559.

U.S. Rates

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Yuan Heads for Fifth Weekly Gain as China Seeks to Cool Economy

Jan. 11 (Bloomberg) -- The yuan headed for a fifth weekly gain, the longest winning streak since September, on speculation China is seeking faster gains to cool the economy.

The currency also rose as the state-run Xinhua News Agency reported today that the nation's trade surplus surged to a record for 2007, adding to pressure for yuan gains. The World Bank this week forecast China will grow more than 10 percent this year and next, which may fuel inflation already at the fastest in more than a decade.

``The pace of appreciation has been increasing and we're seeing the market raise its expectations over the pace of gains,'' said Thio Chin Loo, a senior currency analyst at BNP Paribas in Singapore. ``They're using a tighter policy to cool things down, and stepping on the brakes some more.''

The yuan gained 0.1 percent to 7.2644 versus the dollar as of 12:46 p.m. in Shanghai, compared with 7.2719 yesterday, according to ....
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Bank of England Keeps Benchmark Interest Rate at 5.5%

Jan. 10 (Bloomberg) -- The Bank of England kept its benchmark interest rate unchanged today as policy makers assessed the effects of last month's reduction on the economy.

The nine-member Monetary Policy Committee, led by Governor Mervyn King, left the bank rate at 5.5 percent, as predicted by 40 of 50 economists in a Bloomberg News survey. The rest forecast a quarter-point cut.

Economists predict the Bank of England will wait until next month before lowering rates again as banks rein in lending, damping consumer spending and deepening a slowdown in the housing market. Officials are weighing those risks against inflation pressures after oil prices rose to a record.

``They don't want to take risks on inflation,'' said Stewart Robertson, an economist at Morley Fund Management in London. ``But they missed a trick here. They could have sent a supportive message in the face of a lot of gloomy news. We'll get a cut next month.''

The pound, which initially rose after the decision, fell to a record low 75.45 pence per euro today. Investors are speculating that the deteriorating economy will prompt the Bank of England to lower borrowing costs as soon as traded at 4.346 as of 5:12 p.m. in London. Minutes of the meeting, including how each member voted, will be published on Jan. 23.

U.S. Recession

U.K. Prime Minister Gordon Brown, lagging behind opposition leader David Cameron in opinion polls, is trying to reassure voters that the economy can weather a global slowdown. Brown, who will decide in the next few weeks whether to reappoint King as governor, said yesterday that ``low interest rates'' and ``low inflation'' will keep growth on track.

Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. say the U.S. may already be in recession and recent economic reports suggest the U.K. economy is cooling.

House prices dropped in the fourth quarter for the first time in seven years and shares in Marks & Spencer Group Plc, the country's largest clothing retailer, yesterday fell the most in at least 19 years after an unexpected decline in holiday sales.

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Australian Dollar Rises to Near 4-Week High; N.Z. Dollar Gains

Jan. 10 (Bloomberg) -- The Australian dollar traded near a four-week high and New Zealand's currency rose for a third day on speculation rising prices in the two economies will prevent the central banks from cutting interest rates.

The two Southern Hemisphere currencies have gained almost 1 percent this year on bets their rate advantage over the U.S. will widen as the Federal Reserve cuts borrowing costs. The currencies may rise ahead of consumer price index reports which are likely to show faster inflation, said Joshua Williamson, senior strategist at TD Securities.

``There are plenty of factors to support the Aussie and kiwi,'' Williams said in Sydney, referring to the currencies by their nicknames. ``The odds are rising for an Australian rate rise.''

The Australian dollar was at 88.28 U.S. cents at 4:54 p.m. in Sydney from 88.42 cents yesterday when it reached 88.58 cents, the strongest since Dec. 13. The currency rose to 96.81 yen from 96.70 late in Asia yesterday and reached 97.39 yen, the highest since Jan. 3.

The New Zealand dollar gained to 77.39 U.S. cents from 77.15 cents late in Asia yesterday. The currency advanced to 84.86 yen and touched 85.24 yen, the highest since Jan. 4.

Australia's dollar may gain to 88.60 cents and New Zealand's may reach 78 cents in the near term, Williamson said.

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Yen Rises as Drop in Stocks Spurs Investors to Cut Carry Trades

Jan. 10 (Bloomberg) -- The yen rose against 15 of the 16 most-active currencies as a decline in Asian stocks spurred investors to cut overseas holdings of higher-yielding assets funded by loans in Japan.

The Japanese currency gained the most versus the British pound and Australian dollar as investors cut so-called carry trades on concern the global economy will cool. The pound also fell against the euro before the Bank of England meets on interest rates today, with a Credit Suisse index showing 61 percent odds of a cut in the benchmark from 5.5 percent.

``With stocks falling sharply, investors' tolerance of risk has been damaged,'' said Tetsuhisa Hayashi, chief currency trader in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's largest publicly traded lender by assets. ``More than a few investors are selling overseas assets by paring carry trades.''

The yen climbed to 109.81 against the U.S. currency as of 8:13 a.m. in London from 110.04 yesterday in New York. It traded at 161.03 per euro from 161.31. The MSCI Asia Pacific Index of regional shares fell 1.2 percent, snapping two days of gains, and the Nikkei 225 Stock Average dropped 1.5 percent.

Japan's currency may rise to 90 a dollar by March 31, Hayashi forecast.

The euro traded at 74.97 pence after rising to a record high of 75.10 pence, and bought $1.4663 from $1.4659. European Central Bank policy makers also meet today and are forecast to keep borrowing costs at 4 percent. The Bank of England will announce its decision at noon in London and the ECB at 1:45 p.m. in Frankfurt.

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