The yen rose against the dollar as speculation U.S. lawmakers will fail to agree on a bailout for automakers cut demand for higher-yielding assets bought with funds borrowed in Japan.
The currency also gained against the Australian dollar and the British pound as a deepening global economic slump spurred stock losses in Asia and Europe. A $700 billion U.S. financial stability package isn't intended to prevent General Motors Corp., Ford Motor Co. and Chrysler LLC from collapsing, Treasury Secretary Henry Paulson said in a House hearing yesterday.
``The focus at the moment is on concerns about the U.S. auto sector and fears that Congress will not be able to cobble something together,'' said Steven Barrow, a currency strategist at Standard Bank Plc in London. ``That is helping to give the yen support.''
``I would recommend a continuation pattern of buying the yen,'' said David Bloom, the London-based global head of currency strategy at HSBC Plc, Europe's biggest bank by market value. ``Don't throw your coin in the well and wait around listening for the bottom of the market. This financial crisis is not over.''
The dollar may extend declines before government reports today that economists say will show the housing recession at the heart of the U.S. economic downturn is deepening, bolstering the case for the Federal Reserve to cut interest rates.
The ICE's Dollar Index, a gauge of the greenback against the currencies of six major trading partners, snapped two days of gains as futures traders raised bets the Fed will lower borrowing costs in coming months. A U.S. report yesterday showed confidence among homebuilders dropped in November to the lowest level since record-keeping began in 1985.
``The reports are likely to indicate the U.S. economy is deteriorating further,'' said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale SA, France's second- largest bank by market value. ``The Fed may cut rates more. It's negative for the dollar.''
Housing starts in the U.S. fell to a 780,000 annual pace in October, the lowest since records began in 1959, according to a Bloomberg News survey of economists. Building permits dropped to a 774,000 pace last month, the lowest since November 1981. The Commerce Department releases both reports at 13:30 GMT in Washington.
Futures on the Chicago Board of Trade show a 9 percent chance the Fed will reduce its 1 percent target rate for overnight bank loans to 0.25 percent by its Jan. 28 meeting, up from zero odds a day earlier.
``The dollar may face some selling pressure,'' said Masahiro Sato, joint general manager in Tokyo of the treasury division at Mizuho Trust & Banking Co., a unit of Japan's second-largest publicly listed lender. ``Traders will look for any signs of crisis at the Fed or anything that suggests rates will fall further.''