BLBG: Yen Rises to Record as Economic Concern Spurs Demand for Haven
The yen strengthened to a record against the pound and near a seven-year high versus the euro as concern the global economic slowdown will deepen spurred investors to take refuge in Japan’s currency.
Sterling fell to a 23-year low versus the dollar after a report showed the U.K. economy shrank last quarter by the most since 1980. The euro was poised for a fourth weekly loss against the dollar after Europe’s manufacturing and service industries contracted in January.
“Risk-off is the theme again, which is typically yen- supportive,” said Robert Blake, head of strategy for North America in Boston at State Street Global Markets LLC, which has $15.3 trillion in assets under custody. “Institutional investors are buying the yen.”
The yen gained 0.8 percent to 122.42 versus the pound at 5:02 p.m. in New York, from 123.38 yesterday, after touching the record of 118.85. Japan’s currency advanced 0.4 percent to 115.12 per euro after reaching a seven-year high of 112.12 on Jan. 21. The yen traded at 88.75 per dollar after touching 87.13 two days ago, the strongest since July 1995.
The pound fell 0.5 percent to $1.3804 after touching $1.3503, the lowest level since 1985. The euro rose 0.3 percent to 94.02 pence. The 16-nation currency declined as much as 1.8 percent to a six-week low of $1.2765 before trading at $1.2978.
Yen Versus Pound
The yen had a 9.2 percent weekly gain versus the pound. Japan’s currency advanced 4.5 percent against the euro and 2.2 percent versus the dollar this week. The euro was down 2.2 percent against the greenback.
Japan’s currency is “overvalued significantly,” according to State Street’s Blake, who said the rally “won’t last unless the market continues to be under extreme risk aversion.” The amount wagered in long yen-dollar positions tracked by State Street over the past six months is higher than in 90 percent of six-month periods since 1997, Blake said.
The yuan was little changed at 6.8380 per dollar after earlier slumping by as much as 0.3 percent, according to the China Foreign Exchange Trade System. The commerce ministry said China isn’t curbing appreciation of the yuan to promote exports after Timothy Geithner, President Barack Obama’s nominee for Treasury secretary, said this week that China is “manipulating its currency.” The greenback has fallen 21 percent versus the yuan since a dollar peg was scrapped in 2005.
Russia’s ruble declined 1.2 percent to 33.0891 per dollar today as the central bank widened its trading band in a move toward a free float. Investors and Russian citizens withdrew at least $278 billion from Russia since August, according to BNP Paribas SA data.
U.K. Bailout
Sterling lost 6.3 percent versus the dollar and 4.3 percent per euro this week as the U.K. government’s plan for a second bank bailout in three months raised concern the nation’s budget deficit will keep widening.
“The pound looks set to weaken further as risks surrounding the U.K. continue to ratchet higher,” Ned Rumpeltin, a London-based currency strategist at Morgan Stanley, wrote in a research note yesterday. Sterling will weaken to $1.30 and reach parity with the euro by the end of June, Morgan Stanley forecasts.
Britain’s gross domestic product fell 1.5 percent during the fourth quarter, the Office for National Statistics said today in London. Economists predicted a contraction of 1.2 percent, according to the median of 33 estimates in a Bloomberg survey. The economy has now shrunk for two consecutive quarters, matching the definition of a recession.
European Manufacturing
The euro fell versus the yen today as a report showed Europe’s manufacturing and service industries contracted in January for an eighth month. A composite index of both industries based on a survey of purchasing managers by Markit Economics was at 38.5, compared with 38.2 in December, which was the lowest since the survey began in 1998. A reading below 50 indicates contraction.
European Central Bank President Jean-Claude Trichet said in an interview on CNBC Europe broadcast today that no one is challenging the euro’s credibility.
The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, rose 0.1 percent today, after reaching 86.81, the highest level since Dec. 8.
The yen advanced against all of the major currencies this week, rising 5.7 percent to 46.92 against New Zealand’s dollar and 5 percent to 58.03 versus Australia’s dollar. Investors tend to purchase the yen in times of market turmoil because Japan has a current-account surplus. Japan’s benchmark interest rate of 0.1 percent compares with 4.25 percent in Australia and 5 percent in New Zealand.
Yen Versus Aussie
Japan’s currency gained 9.8 percent versus the Aussie in January, after appreciating 54 percent last year. The yen advanced 12 percent this month versus the kiwi, as New Zealand’s currency is known, following a 65 percent rally in 2008.
“I am very bearish on the global economy, and I don’t see anything there to stop the dollar-yen from getting down to 80,” said Adam Fazio, a currency strategist at CIBC World Markets Inc. in New York. That level would be near the lowest since World War II.
