BLBG: Yen Falls as Rally in Stocks Cuts Demand for Currency as Haven
By Bo Nielsen
Dec. 8 (Bloomberg) -- The yen fell against the euro as stocks rallied around the world after U.S. President-elect Barack Obama’s unveiled the biggest economic stimulus plan since the 1950s, cutting appetite for Japan’s currency as a haven.
The yen also slid against the Australian dollar as U.S. lawmakers neared agreement on bridge loans for General Motors Corp. and Chrysler LLC to help the automakers survive this month. The dollar fell against the euro as Obama’s plans lowered pressure on finance companies to hoard the U.S. currency amid the credit crisis.
“Anything that brings down risk aversion and causes stock markets to rally is bad for the yen,” said Ulrich Leuchtmann, head of foreign-exchange research in Frankfurt at Commerzbank AG, Germany’s second-biggest bank. “Obama and his team will run a very proactive type of recession-fighting, causing the fear of a global slowdown to abate. The yen has mostly profited from the high level of global risk aversion.”
The yen weakened to 120.27 per euro as of 7:12 a.m. in New York from 118.18 on Dec. 5. It depreciated to 93.44 against the dollar from 92.83. The Japanese currency slid 3.3 percent to 61.93 per Australian dollar. The euro rose to $1.2872 from $1.2718.
The MSCI World Index of stocks added 3 percent, Standard & Poor’s 500 Index futures jumped 2.5 percent and Europe’s Dow Jones Stoxx 600 Index advanced 5 percent. The yen traded in inverse relation with the European index more than 90 percent of the time in the past month, data compiled by Bloomberg show.
Obama’s Plans
Obama, in a television interview yesterday on NBC, reiterated his commitment to the biggest investments in the nation’s infrastructure since President Dwight D. Eisenhower created the interstate highway system half a century ago. The U.S. President-elect takes office on Jan. 20.
“The prospect of a rebound of risk appetite remains in place,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas SA, France’s biggest bank, wrote in a research note today. “The yen is likely to be the weakest currency in town.”
The U.S. House and Senate will meet this week to debate extending $15 billion in loans to GM and Chrysler as a global recession crimps consumer spending, making it difficult for the automakers to pay their bills. U.S. car companies originally requested $34 billion.
‘No Guarantee’
The yen’s losses may be limited by speculation a U.S. rescue of GM and Chrysler may not prevent the two firms from filing for bankruptcy protection or being acquired. GM is willing to accept strict conditions for a U.S. loan to stay afloat, including a promise to return the money and file for bankruptcy if the company doesn’t fulfill the terms, Chairman Richard Wagoner said Dec. 5.
“The bias is for the yen to appreciate,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “There’s no guarantee that this bailout will come together and prevent these companies from going under. That discourages any sort of risk trade and boosts the yen.”
The yen may advance to 92.50 per dollar and 117.60 against the euro today, he said.
Gains in the euro may be limited after European Central Bank council member Ewald Nowotny said the bank is in a wait- and-see mode and won’t necessarily cut interest rates again next month to stimulate the economy.
ZEW Report
“We’ll observe how things are working, what’s happening, and then we’ll see,” Nowotny said in an interview in Wuerzburg, Germany, late on Dec. 5. “The ECB certainly doesn’t want to be pressured by expectations.”
Investor confidence in Europe’s largest economy worsened in December, the ZEW Center for European Economic Research’s index of German investor and analyst expectations will probably say tomorrow. The index fell to minus 57 in December from minus 53.5 the previous month, according to a Bloomberg News survey. The research center will release the data tomorrow in Mannheim.
The ECB lowered its benchmark rate to 2.50 percent from 3.25 percent on Dec. 4 after data last month showed Europe’s inflation rate fell by the most in almost two decades.
The cooling global economy is halting the spread of monetary union into eastern Europe and may lead to another year of losses for the Polish zloty, Hungarian forint and Czech koruna, New York-based Morgan Stanley and UBS AG in Zurich said.
‘Mirage’
The zloty fell 21 percent against the euro since July as Poland headed for its biggest economic slowdown in almost a decade, while Hungary turned to the World Bank, International Monetary Fund and European Union for a bailout as the forint weakened 16 percent. Koruna volatility almost tripled as it fell 13 percent. The two-year mandatory trial period before adopting the euro allows swings of no more than 15 percent.
Less than three months after announcing a target of 2012, Polish Finance Minister Jacek Rostowski said the date isn’t “dogma.” The main opposition party says rushing into the currency will hurt growth and trigger inflation.
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
