BLBG: Yen Rises Against Euro as Global Economic Slump Boosts Appeal
By Kim-Mai Cutler
Dec. 9 (Bloomberg) -- The yen rose versus the euro for the first time in three days as reports in Europe showed the global economic slump is deepening, fueling demand for the Japanese currency as protection against losses on higher-risk assets.
The yen also advanced against the dollar after a ZEW index in Germany showed investors became more pessimistic about current economic conditions. The British pound tumbled against the dollar and the euro as U.K. home sales fell to the lowest level since at least 1978 and factory production dropped almost three times as much as economists forecast in October, extending the country’s worst contraction since 1980.
“We’re in an environment where global growth is slowing very sharply,” said Lee Hardman, a foreign-exchange strategist in London at Bank of Tokyo-Mitsubishi Ltd. “Safe-haven demand will remain for the dollar and yen going forward.”
The yen appreciated to 119.13 per euro at 7:17 a.m. in New York, from 120.26 yesterday. Against the dollar, the yen strengthened to 92.63 from 92.82. Japan’s currency may trade at 90 against the dollar by the end of the year, Hardman said. The euro slid to $1.2862 from $1.2963. The pound fell to $1.4772 from $1.4915, and to 136.83 yen from 138.41.
Australia’s dollar fell 1.4 percent to 65.54 U.S. cents. It also slid 1.6 percent to 60.71 yen. National Australia Bank Ltd. said its sentiment index for November fell one point to minus 30, the lowest level since the series began in 1989.
The dollar declined against the yen amid speculation a housing slump will extend into a fourth year. An index of U.S. pending home resales fell 3 percent after dropping 4.6 percent in September, according to the median forecast in a Bloomberg News survey of 34 economists. The National Association of Realtors will release the data at 10 a.m. in Washington today.
Economic Slump
Governments are seeking to boost their economies as the credit-market seizure and $980 billion of losses on mortgage- related securities worldwide force companies to eliminate jobs, curbing consumer spending and demand for imports.
U.S. President-elect Barack Obama, who takes office Jan. 20, pledged over the weekend to boost the economy with the biggest public-works spending package since the 1950s. The European Union proposed a 200 billion-euro ($257 billion) stimulus package last month.
The yen rose 15 percent against the dollar and 26 percent against the euro this quarter on concern the U.S. economy is in its longest slump since World War II. The European Central Bank made the single deepest cut in its benchmark interest rate in history on Dec. 4.
Increased Volatility
Implied volatility on one-month euro-yen options rose to 49.63 percent on Oct. 27, the highest level since Bloomberg began tracking the data in 1999, prompting Stephen Jen, global head of currency research at Morgan Stanley in London, to suggest governments may intervene to prevent currencies from appreciating too quickly.
The euro fell against the dollar today as the ZEW Center for European Economic Research in Mannheim said investors became more pessimistic about current conditions, with an index of sentiment slumping to minus 64.5 from minus 50.4. German investor confidence unexpectedly rose in December, a separate index showed.
“Data is almost inconsequential at this point,” said Neil Mellor, a foreign-exchange strategist in London at Bank of New York Mellon Corp., a custodian of $23 trillion of financial assets. “We’ve seen some frankly awful figures in the euro zone and the U.K. We’ve also seen consistently that the dollar has been strong despite a frankly awful succession of figures.”
Lower Inflation Risks
Risks to price stability in the 15 countries sharing the euro have fallen “significantly,” ECB President Jean-Claude Trichet said in a British Broadcasting Corp. interview yesterday.
ECB forecasts published last week show the euro-region economy will shrink about 0.5 percent next year, which would be its first full-year contraction since 1993.
The pound fell after the Office for National Statistics said today in London that factory production slid 1.4 percent, the eighth monthly drop and the longest streak of declines since the 1980 recession, when Margaret Thatcher was prime minister.
Home sales tumbled to the lowest level in three decades, the Royal Institution of Chartered Surveyors said.
The Bank of England last week cut its benchmark interest rate to 2 percent, the lowest in half a century, as policy makers sought to prevent deflation from taking hold. The economy contracted 0.5 percent in the third quarter, after zero growth in the second.
“Sterling can lose more ground against the dollar,” said Thomas Harr, a senior currency strategist in Singapore at Standard Chartered Plc, the U.K. bank that gets most of its profit from Asia. “The outlook for the British economy looks pretty horrible. We think the BOE will cut rates quite dramatically.”
The pound may fall as low as $1.35 in the first quarter as the U.K. central bank lowers its benchmark rate to 0.5 percent, Harr forecast.
To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net
