The yen dropped against the euro and the dollar for the first time in three days as stock gains fueled speculation investors will be slower in selling higher- yielding assets funded by low-cost loans in Japan.
``In terms of currencies, we are still largely tracking equities,'' said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. ``It's still an equity-driven market.''
The ICE's Dollar Index, a gauge of the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden's krona, rose to 86.987 from 86.807 yesterday. The index reached 88.147 on Nov. 13, the highest level since April 2006, as investors sought safety in U.S. assets.
International demand for U.S. financial assets rose more than economists forecast in September. Total net purchases of long-term equities, notes and bonds increased $66.2 billion in September from $21 billion in the previous month, the Treasury said today.
``I am very, very bullish on the dollar,'' said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt. ``The main story that we are seeing at the moment is the high perception of risk, and that is leading to capital repatriation back into the U.S.''
The yen dropped against the Australian dollar and versus New Zealand's currency on speculation carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher, will unwind at a slower pace.
Minutes of the Reserve Bank of Australia's Nov. 4 meeting released today showed policy makers cut the cash target by 0.75 percentage point in response to ``the marked deterioration in global financial conditions'' in the past couple of months.
``The RBA is likely to reduce rates further,'' said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's biggest bank. ``There's a downside risk for high-yielding currencies.''