Feb. 3 (Bloomberg) -- The dollar fell the most in a week against the euro in London after police said the poison ricin was found in the Washington offices of Senate Majority Leader Bill Frist, raising concern about terrorism against the U.S. ``It will make the market more cautious toward the dollar,'' said Frank Gong, chief strategist in Hong Kong at Bank of America Corp., who used to work at the Federal Reserve. ``The U.S. has been warning recently about possible terrorist attacks.''
Powder found in Frist's mailroom in the Dirksen Senate Office Building tested positive for ricin, U.S. Capitol Police said. Frist, a Republican from Tennessee, said the powder may have been inhaled by people who came in contact with it. Against the euro, the dollar tumbled to $1.2556 at 8:05 a.m. in London from $1.2424 late yesterday in New York. The yen rose to 105.30 versus the dollar, the highest in 3 1/2 years. The dollar may trade between $1.23 and $1.29 in the next month, said Bank of America's Gong. The dollar's slide accelerated after it reached $1.2470, triggering pre-set orders to sell the currency and buy euros, said Niels Christensen, a currency strategist at Societe Generale SA in Paris. ``European traders came in and were surprised to find the euro trading at $1.2470 and took the opportunity to bid it higher,'' Christensen said. ``When traders left last night, the euro was at $1.24 and it looked like it would go to $1.2350.'' Treasuries gained after the ricin was discovered. The benchmark 4 1/4 percent Treasury note due in November 2013 rose 7/32, or $2.19 per $1,000 face amount, to 101 1/32. The yield fell 3 basis points to 4.12 percent. A basis point is 0.01 percentage point.
Flights Canceled
The ricin discovery comes amid heightened concern about terrorism. Al-Qaeda plans to release chemical or biological agents on a plane or place a radiological device in luggage, the Washington Post said Sunday, citing senior U.S. government officials it didn't identify. Continental Airlines Inc. canceled flights from Scotland to Los Angeles and between Washington and Houston on Sunday, a day after British Airways Plc and Air France grounded nine flights to Washington and Miami, citing warnings of possible terror attacks.
The dollar's decline may be limited by speculation officials attending a meeting of Group of Seven finance ministers in Boca Raton, Florida, this weekend will say the euro's advance over the past year is straining Europe's economy. ``People will still be worried about how Europeans will present their concern over the euro's gain,'' said Tommy Ong, vice president of the treasury and markets in Hong Kong at DBS Bank (Hong Kong) Ltd., a unit of Southeast Asia's biggest bank.
`Sole Major Seller'
Demand for the yen was also spurred by expectations Japan will curb sales of its own currency before the meeting. Japan, which spent $68 billion last month trying to stem the yen's advance, is seeking to avoid criticism from European and U.S. officials who want the dollar to appreciate against Asian currencies, said Tohru Sasaki, a strategist at J.P. Morgan Chase & Co. in Tokyo. Sasaki used to work at the Bank of Japan. G-7 nations accept that Japan needs to sell yen and will discuss the recent decline in the dollar at their meeting, said a Japanese Ministry of Finance official who declined to be named. Still, ``Japan could back down right before the G-7 meeting'' by reducing their sales of yen, said Minoru Shioiri, manager of treasury and foreign exchange in Tokyo at Mitsubishi Securities Co., a unit of Japan's biggest bank by market value. ``The yen may be losing the sole major seller.'' The yen may gain to 104.80 this week, Shioiri said.
Asian Stocks Decline
Asian stocks fell on concern the dollar's decline will crimp the earnings of exporters including Toyota Motor Corp., Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. The MSCI Asia-Pacific Index, which tracks more than 800 stocks in the region, shed 0.7 percent to 88.69 as of 3:23 p.m. in Tokyo, for a five-day drop of 2.9 percent. Japan's Nikkei 225 Stock Average sank 1.3 percent to 10,641.92. The yen rose beyond 115 -- the level Japan protected for two and half years -- during the week of the previous G-7 meeting in Dubai on September 20. Japan sold yen for nine straight trading days through Sept. 16, leaving the yen gain through 115 for the rest of the week, according to Ministry of Finance data. Japan has sold record amounts of yen since the start of last year to prevent a stronger yen from crimping demand for exports. The BOJ sold 7.15 trillion yen in the four weeks to Jan. 28, the government said last week, almost a third of last year's total. Finance Minister Sadakazu Tanigaki told reporters in Tokyo Japan is still prepared to sell yen, adding the yen's recent gain has been a ``bit rapid.'' The yen has gained 1.6 percent versus the dollar this year, extending its advance in the past 12 months to 14 percent. The euro has climbed 16 percent.
Japanese Economy
Japan's currency may also rise on signs investors outside the country are buying more assets in the world's second-largest economy. Overseas investors were net buyers of Japanese stocks for nine consecutive months through December. The world's second-largest economy will grow 1.8 percent in the 12 months that started April 1, the third year of expansion, the Cabinet Office said last month. ``Japan's economic condition has been improving, encouraging more inflow of capital to the country,'' said Xinyi Lu, strategist in Tokyo at UFJ Bank Ltd., a unit of Japan's fourth- biggest lender. ``In addition, there is speculation Japan may sell less right before the G-7.'' The dollar may fall below 105 yen this week, Lu said. The yen strengthened almost 11 percent against the dollar last year, while the euro gained 20 percent. //www.bloomberg.com