The Wall Street Journal-20080213-Buffett Helps Dollar Gain on Yen

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Buffett Helps Dollar Gain on Yen

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The dollar rose against the yen yesterday as investors cheered the news of billionaire investor Warren Buffett's offer to reinsure municipal bonds.

Mr. Buffett said he would help troubled bond insurers by offering a second level of insurance on as much as $800 billion in municipal bonds. In an interview on CNBC, Mr. Buffett said one bond insurer rejected Berkshire Hathaway Inc.'s offer while he has yet to hear back from other companies.

That helped keep U.S. stocks rising during most of the session, which improved risk sentiment in currency markets and damped investors' interest in holding onto low-yielding, safe-haven currencies like the yen.

"The correlation between equity prices and dollar movements, especially the dollar versus the yen, has been rather high lately," said John McCarthy, manager of currency trading at ING Capital Markets in New York. "Stock markets responded positively to Mr. Buffett's proposal, but frankly, I'm surprised they've held up. I'd be a little careful, because I think we're in for another period of volatility that will be good for the yen."

Late yesterday afternoon in New York, the dollar was at 107.27 yen, up from 106.91 yen late Monday, while the euro was at $1.4585, up from $1.4523. The euro was at 156.46 yen, up from 155.26 yen Monday.

The British pound was at $1.9610, up from $1.9513, while the dollar was at 1.1018 Swiss francs, up from 1.1017 Swiss francs late Monday.

The euro rose against the dollar for the third straight session after an index survey of German financial analysts and institutional investors unexpectedly improved in February.

The economic expectations index from the Center for European Economic Research, or ZEW, showed it increased to minus 39.5 points from minus 41.6 points in January. That was better than economists' forecasts of minus 45.0 points, and suggested Germany -- the largest economy in the euro zone -- may be set to improve after a slowdown.

The dollar also felt some pressure against the euro when a Federal Reserve official said the U.S. economy still faces a "significant threat" and said it is too early to start talking about removing the Fed's accommodative stance on interest rates.

"The threat hasn't passed," San Francisco Fed President Janet Yellen told reporters after a speech. "We need to remain very focused on the downside risks to the economy."

Still, the euro's gains were capped around $1.4600, suggesting bets the euro will rise.

There are also downside risks for the dollar, including this morning's release of January retail-sales data, which is expected to show another negative month amid weak auto sales. A weak number could lead to a new round of dollar-selling as investors would be reminded of the likelihood that the Fed will cut rates further to keep the U.S. economy on track.

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Nina Koeppen in Mannheim, Germany, and Matthew Cowley in San Francisco contributed to this article.