BLBG: Yen Gains as Drop in U.S. Retail Sales Boosts Demand for Haven
The yen advanced to a one-month high against the euro as a drop in U.S. retail sales raised concern that the global recession is deepening, increasing the haven appeal of the currency.
The euro was little changed against the dollar with European Central Bank policy makers forecast to cut interest rates by 0.5 percentage points tomorrow. The Russian ruble dropped to lowest in six years against the dollar after the central bank devalued the currency for the third time in four days and the government’s dispute with Ukraine over gas shipments remained unresolved.
“Today’s retail sales numbers highlight the theme that when the U.S. sneezes, the rest of the world catches a cold,” said Robert Blake, a senior currency strategist in Boston at State Street Global Markets LLC, which has $15.3 trillion in assets under custody. “The bad news is already priced in the U.S. economy, but in other economies around the world, particularly Europe, there’s more bad news to come.”
The yen advanced 0.3 percent to 89.07 per dollar at 11:44 a.m. in New York, from 89.38 yesterday. The yen climbed 0.4 percent to 117.333 per euro, after touching 116.74, the strongest level since Dec.5. The dollar traded at $1.3171 from $1.3182. It touched $1.3093, the strongest since Dec. 11.
The euro dropped versus the dollar below the 55-day moving average of about $1.32 yesterday for the first time since Dec. 11. That suggests the European currency may extend the decline to $1.30 in the next few days, according to Mike Moran, a senior currency strategist at Standard Chartered Bank in New York.
Ruble Devaluation
Russia’s ruble fell to as low as 31.756 per dollar, the weakest since February 2003. The ruble has dropped 26 percent since August. Bank Rossii, which manages the ruble against a target euro-dollar basket to protect exporters from currency fluctuations, expanded the trading range today, a bank official said, without providing details.
The Japanese currency gained as much as 2.8 percent to 48.05 yen versus the New Zealand dollar and advanced 2.8 percent against the Mexican peso as investors sold higher-yielding assets and bought back low-cost loans in Japanese currency. Japan’s 0.1 percent benchmark compares with 8.25 percent in Mexico and 5 percent in New Zealand.
The yen has advanced against all major currencies this year, rising 8.4 percent versus the New Zealand’s dollar and 7.8 percent against the euro.
The Dollar Index traded on ICE futures, which tracks the greenback versus six major U.S. trading partners, touched 84.64, the strongest level since Dec. 11. The index has gained 4 percent this year, after losing 6 percent in December, when the Fed lowered its benchmark interest rates to a range between zero and 0.25 percent, a record low.
Retail Drop
U.S. retailers fell 2.7 percent in December, the sixth consecutive drop, extended the longest string of declines on record, the Commerce Department said. That was more than twice as much as forecast. Purchases excluding automobiles slumped 3.1 percent, the most since records began in 1992.
“The improvement in the tone of risk appetite since earlier this year had a set-back,” said Todd Elmer, a currency strategist at Citigroup Global Markets in New York. “The correlation between risk aversion and a stronger dollar is not over yet. That means continued strengthen in the dollar versus high-yielding assets.”
The euro began to weaken after Deutsche Bank AG, German’s largest bank, reported a record loss of about 4.8 billion euros ($6.3 billion) in the fourth quarter.
A Credit Suisse Group AG gauge of probability based on overnight index swaps indicated the ECB will lower its 2.5 percent main rate by at least half a percentage point tomorrow, with 7 percent odds that the cut will be deeper. The median forecast of economists surveyed by Bloomberg is for a 0.5 percentage-point reduction.
Rally Reversed
The European currency rose 10 percent versus the dollar in December when ECB President Jean-Claude Trichet said he didn’t want to be “trapped” with borrowing costs too low. The rally reversed this month as speculation mounted that the ECB will be forced to cut interest rates again as economic slowdown deepened. The euro lost 6 percent versus the dollar this month.
The cost of hedging against losses on European government bonds jumped as Standard & Poor’s cut Greece’s credit rating and threatened to downgrade Ireland, Portugal and Spain.
Credit-default swaps on Greece have soared 168 basis points since September, while Ireland climbed more than seven- fold to 217, Spain rose about 72 basis points to 123.5 and Portugal increased 81 to 121. Contracts linked to the debt of lower-rated Mexico and Vietnam fell in the same period.
“Europe is coming under increasing stress as the result of the credit crunch,” said Standard Chartered’s Moran. “Major currency investors are overweighing the dollar. We need to see more positive data before they reallocate their assets.”
