The yen fell against most major peers on prospects gradual recoveries in the world’s largest economies will support global growth while forcing central banks in Japan and the U.S. to keep interest rates near zero. The euro gained for the first time in eight days versus Japan’s currency before Dec. 29 reports forecast to show European inflation accelerated last month and German consumer prices rose. The dollar is poised for a weekly loss against 12 of its 16 most-traded counterparts as currency volatility fell, spurring investments in riskier assets. Reports next week may reveal confidence among U.S. consumers improved even as housing remained the economy’s weak link. “Volatility is very low, and whenever that happens, relative economic health takes over as a driver of currencies,” said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia. “People are using this quiet period to put on some carry trades.” The yen fell to 108.95 per euro as of 6:31 a.m. in London from 108.74 in New York yesterday. It declined 0.3 percent to 62.17 per New Zealand dollar and 0.3 percent 13.91 per Norwegian krone. Against the dollar, the yen fell 0.1 percent to 83, paring this week’s advance to 1.2 percent. The U.S. currency traded at $1.0040 per Australian dollar from 98.82 U.S. cents in New York a week ago. Yesterday it reached $1.0067, the weakest since Nov. 11. The greenback was at $1.3127 per euro from $1.3114 yesterday. Benchmark interest rates of 3 percent in New Zealand, 2 percent in Norway and 4.75 percent in Australia compared with as low as zero in Japan and the U.S. In so-called carry trades, investors borrow in low-rate climates to invest in higher- yielding markets elsewhere. The risk in such trades is that currency market moves will erase profits. Money Supply Europe’s M3 money supply, which the European Central Bank uses as a gauge of future inflation, grew 1.6 percent in November from a year earlier, the most since September 2009, a Bloomberg survey of economists showed before the report. The inflation rate in Germany, calculated using a harmonized European method, increased to 0.9 percent in December from 0.1 percent in November, a separate report will show according to a Bloomberg survey. The euro will end 2011 near $1.50 as European growth accelerates led by Germany, Gavin Stacey, an interest-rate strategist at Barclays Capital in Sydney, said in an interview with Bloomberg Television. “If the euro gets down to around the $1.25 level, then that’s a good time to load up on the European growth story because Germany is growing fast,” he said. China Voices Support Demand for the common currency was also boosted as Chinese officials this week expressed support for the European Union. The strengthening of the euro’s status will help “promote the building of a diversified global currency system,” China’s ambassador to the EU Song Zhe said yesterday in a statement on the Foreign Ministry’s website. His comments follow those of Chinese Vice Premier Wang Qishan, who said on Dec. 21 that his nation has taken “concrete action” to help the EU address its debt crisis. The Conference Board’s sentiment index for U.S. consumers rose to 56.3, according to the median estimate in a Bloomberg survey before the New York-based group’s report due Dec. 28. A S&P/Case-Shiller index of home values in 20 U.S. cities fell 0.2 percent in October from the same month in 2009, the first year-on-year decline since January, a report is predicted to show on Dec. 28. The gauge probably declined 0.7 percent from the prior month after adjusting for seasonal variations. ‘Risk-On Sentiment’ “Recoveries around the world appear to be picking up,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “There seems to be risk-on sentiment, which is likely negative for the yen and dollar.” The JPMorgan Chase & Co. G7 Volatility Index, which shows implied volatility for the most-traded currencies, declined to 12.23 today from 12.34 on Dec. 17. Volatility on one-month Australian dollar options against the greenback fell to as low as 11.64 percent today, the least since May 5. Asian currencies headed for a weekly gain, led by Malaysia’s ringgit and Singapore’s dollar. The Bloomberg- JPMorgan Asia Dollar Index rose 0.5 percent this week, the most since the five-day period ended Dec. 3. The ringgit advanced 0.6 percent to 3.096 per dollar and the Singapore dollar appreciated 0.7 percent to S$1.3017, according to data compiled by Bloomberg. “Some players are positioning themselves for the next year,” said Mirza Baig, a Singapore-based currency strategist at Deutsche Bank AG, the world’s largest foreign-exchange trader. “Generally, everybody’s theme is that Asian currencies will do well next year.” To contact the reporter on this story: Candice Zachariahs in Mumbai at czachariahs2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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