By Ye Xie and Matthew Brown Nov. 17 (Bloomberg) -- The dollar and yen advanced versus the euro as a report showed U.S. industrial production rose last month less than economists forecast, discouraging demand for higher-yielding assets. Australia’s dollar fell from almost the highest level in 15 months as minutes from the Reserve Bank’s meeting cast doubt on a third straight increase in lending rates. Federal Reserve Chairman Ben S. Bernanke said yesterday the central bank’s policy will help support a “strong” dollar. “The market is waiting for economic fundamentals to confirm the risk rally hasn’t gone too far,” said Sacha Tihanyi, a currency strategist at Bank of Nova Scotia in Toronto. “A lot of currencies are still flirting with this year’s highs. There’s limited risk-reward at these valuations. You need to tread carefully and play short-term.” The dollar strengthened 0.6 percent to $1.4886 versus the euro at 9:22 a.m. in New York, from $1.4970 yesterday. The euro decreased 0.4 percent to 132.75 yen, from 133.33. The dollar climbed 0.2 percent to 89.20 yen, from 89.05. U.S. industrial production increased 0.1 percent last month after a 0.6 percent advance in September, the Fed reported today. The median forecast of 75 economists in a Bloomberg survey was for a 0.4 percent gain. The global economic recovery is likely to be slow, although a double dip is unlikely, International Monetary Fund Managing Director Dominique Strauss-Kahn said at a briefing today in Beijing. China’s yuan may be added in the future to the basket of currencies that sets the value of IMF monetary units called special drawing rights, Strauss-Kahn said. China on Currency Governor Zhou Xiaochuan of China’s central bank advocated earlier this year a greater use of SDRs and called for a “super- sovereign reserve currency.” President Barack Obama said he emphasized to Chinese President Hu Jintao the need for China to keep moving toward a more market-based valuation for the yuan. “I was pleased to note the Chinese commitment made in past statements to move toward a more market-oriented exchange rate over time,” Obama said during a joint appearance with Hu after a meeting in Beijing today. Obama said he noted that “doing so based on economic fundamentals would make an essential contribution to the global rebalancing effort.” China’s central bank said last week foreign-exchange policy will take into account global capital flows and changes in major currencies and dropped language on keeping the yuan “basically stable” from a report. China’s Yuan The yuan has traded at about 6.83 per dollar since July 2008 after a 21 percent gain in the previous three years. The link of the yuan to the weakening dollar has pushed the Chinese currency down 16 percent versus the euro and 8 percent against the yen over the past year, adding to pressure from China’s export competitors to let the yuan appreciate. The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency’s value against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, increased 0.5 percent to 75.298. The gauge touched 74.679 yesterday, the lowest level since August 2008, even after Bernanke said in New York that the Fed is “attentive” to changes in the dollar’s value and “will help ensure that the dollar is strong.” “Bernanke’s speech yesterday was significant for the dollar,” said David Deddouche, a foreign-exchange strategist in Paris at Societe Generale SA. “Should the dollar drop significantly more in the medium term, its inflationary impact through commodity prices will now be finely monitored, and the corollary is that this factor could be one of the reasons for a Fed or Treasury intervention.” Investment Flow International demand for long-term U.S. financial assets strengthened in September as Japan, the U.K. and China added to holdings of Treasury debt, a government report showed. Net buying of long-term equities, notes and bonds totaled $40.7 billion for the month after net buying of $34.2 billion in August, the Treasury Department said. Including short-term securities such as stock swaps, foreigners bought a net $133.5 billion in September, after purchases of $25.3 billion in the previous month. Australia’s dollar dropped 1 percent to 92.72 U.S. cents after touching 94.06 cents yesterday, the highest level since August 2008. The pace of interest-rate increases is an “open question” as policy makers balance the risk of keeping borrowing costs too low against an economy that may cool as government stimulus abates, according to minutes of the Reserve Bank’s November meeting, when it increased the benchmark overnight cash rate target to 3.5 percent. ‘Gradual Adjustment’ “If economic conditions evolved as expected, further gradual adjustment in the cash rate would most likely be appropriate over time,” the minutes said. The pound strengthened as much as 0.6 percent to a two- month high of 88.49 pence per euro after a report from the Office for National Statistics showed annual inflation accelerated in October for the first time in eight months. “The data generally has been very strong,” said Henrik Gullberg, a currency strategist in London at Deutsche Bank AG, the world’s largest currency trader. To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net

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