Yen VS Dollar

     Tip:The yen and the dollar strengthened as stocks around the world declined before a report likely to show the U.S. unemployment rate rose to a 26-year high, spurring demand for the currencies as a refuge.

     Q:what is the opinion of China?

     A:Chinese Foreign Ministry official said he was “not aware” of a plan to discuss a new reserve currency at next week’s Group of Eight meeting. Sweden’s krona dropped after the Riksbank unexpectedly cut its main interest rate. The Swiss franc fell after a central bank board member said officials will act to prevent its gains. The euro slid before a meeting at which European Central Bank policy makers will probably leave the benchmark rate at a record low.

     “If there’s a disappointing number, the market will take fright and the dollar may get more support,” said Gavin Friend, a markets strategist at National Australia Bank in London. The China comments “offer support, the market has been on tenterhooks ahead of the G-8 meeting.”

     Q:Can you give us some examples of the currency?

     A:The dollar strengthened to $1.4097 per euro as of 9:54 a.m. in London, from $1.4142 in New York yesterday, when it weakened to $1.4201, the lowest level since June 5. The U.S. currency was at 96.69 yen from 96.65 yen. The yen appreciated to 136.30 per euro from 136.70 yesterday, when it reached a two-week low.

     Q:how does the currency influence the unemployment rate ?

     A:U.S. employers cut 365,000 jobs last month after reducing them by 345,000 in May, according to a Bloomberg News survey of economists before the Labor Department report. The unemployment rate climbed to 9.6 percent, a separate Bloomberg survey showed.

     Other information:

     The Dollar Index, which tracks the currency against those of six major U.S. trading partners including the euro, yen and pound, advanced 0.4 percent to 79.946.

     “We hope that as the main reserve currency the exchange rate of the U.S. dollar will be stable,” China’s Vice Foreign Minister He Yafei told reporters in Beijing. “This international financial crisis has fully exposed the weaknesses and loopholes in the international monetary system.”

     The dollar fell yesterday after Reuters reported that China had asked to debate proposals for a new global reserve currency at the G-8 summit in Italy. China’s central bank renewed its call for a new global currency in its 2008 review released last week, prompting speculation that the country will diversify its currency reserves.

     The krona fell after the Riksbank said the weak economy required a “somewhat more expansionary monetary policy,” cutting its key rate a quarter point to 0.25 percent. The reduction was forecast by one of 17 economists surveyed by Bloomberg, with the rest predicting no change.

     ‘Most Dovish’

     “That was a big surprise for most people,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. “They continue to be one of the most dovish central banks around and this will stall an appreciation of the krona.”

     The Swedish currency declined 0.9 percent to 10.8226 per euro and 1 percent to 7.6621 against the dollar.

     The franc weakened against 12 of the 16 major currencies tracked by Bloomberg after Swiss National Bank Governing Board member Thomas Jordan said the SNB remains ready to act to prevent a further appreciation of the currency. The franc traded at 1.5232 per euro, from 1.5206 yesterday.

     The yen strengthened versus 12 of the 16 major currencies as stocks declined before the U.S. employment report. Europe’s Dow Jones Stoxx 600 Index fell 1.3 percent. Standard & Poor’s 500 Index futures lost 0.5 percent.

     Jobs Data Impact

     The dollar may be affected by the jobs data should the figure differ from economists’ expectations by at least 10 percent to 20 percent, UBS AG said.

“The number will need to deviate at least 10 to 20 percent from consensus to move the dollar” Brian Kim, a currency strategist in Stamford, Connecticut, wrote in a note yesterday. “A weaker number should be positive news for bonds and the U.S. dollar and negative news for stocks. A higher-than-expected figure would be good news for market sentiment and hence could hurt the U.S. dollar, with the exception of dollar-yen.”

     ECB policy makers will keep their main refinancing rate at 1 percent following a meeting today, according to a Bloomberg survey. The bank has used up its scope to reduce borrowing costs, Axel Weber, a council member who heads the Bundesbank, said last week. Officials are meeting in Luxembourg today.

     Gains in the yen were tempered after a government report today showed Japanese investors purchased the most overseas debt in four years.

     Japanese investors bought 1.53 trillion yen ($15.8 billion) more foreign bonds than they sold in the week ended June 27, the most since the period ended June 24, 2005, the Finance Ministry said in a report.