The Yen falls versus the Euro as investors seek higher yielding assets

The yen fell against the euro on speculation U.S. plans to help banks dispose of toxic assets will give investors the confidence to seek higher yields. The dollar traded near a two-month low versus the euro after Treasury Secretary Timothy Geithner unveiled proposals to finance as much as $1 trillion in purchases of illiquid property assets, weakening demand for the safety of the Japanese and U.S. currencies. “For now, the dollar should remain under pressure,” Ashley Davies, a Singapore-based currency strategist at UBS AG, wrote in a note today. “The dollar was undermined last week by the Fed’s action.” The EUR/JPY is currently trading at 133.55 as of 8:40am, GMT.

Investors should buy the British pound against the yen on speculation the U.K. government’s strategy of pumping money into the financial system will boost financial shares, according to BNP Paribas SA. The Bank of England bought 7 billion pounds ($10 billion) of gilts in the week through March 19 with newly created money using its Asset Purchase Facility. The central bank’s so-called quantitative easing has helped reduce the cost of protecting U.K. government bonds from default and is “positive” for assets such as stocks and commodities, analysts at BNP Paribas, France’s largest bank, wrote in a research note yesterday. “Sterling-yen should perform pretty well as long as equities rally and risk appetite improves,” Sharada Selvanathan, a currency strategist in Hong Kong at BNP Paribas, said in an interview, confirming the note. “There could also be some flows leaving Japan as investors look outside for investment opportunities.” The GBP/JPY is currently trading at 144.20 as of 8:45am, GMT.

European stocks were set to rise on Tuesday, extending the previous session's strong rally sparked by the U.S. plan to help banks get rid of troubled assets as well as better-than-feared housing data. The European Central Bank can cut interest rates further and may also announce extra steps to boost liquidity to banks, policymakers said on Monday. ECB President Jean-Claude Trichet said the ECB was likely to keep its focus on banks as an alternative channel for boosting economic growth, in addition to cutting rates. The EUR/USD is currently trading at $1.3600 as of 9:05am, GMT.

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