BLBG: Yen Gains as Stocks Fall on Concern Bank-Bailout Plan Will Fail
The yen rose against the dollar and the euro as stocks around the world fell on concern the U.S. government will fail to revive bank lending, boosting demand for Japan’s currency as protection against the financial turmoil.
The euro also fell for a third day against the yen after a report showed industrial output in the 16-nation region declined the most on record in December, giving the central bank more reason to cut interest rates. The dollar weakened against the yen for a fourth day before data that may show retail sales fell for a seventh month and the number of Americans filing first-time jobless claims remained near a 26-year high.
“There’s a general negative tone blowing through the market,” said Paul Robson, a London-based currency strategist at Royal Bank of Scotland Group Plc. “The relief rally has been short-lived and ended with the disappointment from the recent U.S. stimulus-plan announcements.”
The yen strengthened to 90.05 per dollar as of 11:02 a.m. in London, from 90.40 in New York yesterday, when it reached 89.71, the strongest since Feb. 5. It appreciated to 115.54 per euro from 116.66. The dollar was at $1.2831 per euro from $1.2906.
The MSCI World Index dropped a third day, losing 1 percent, and Europe’s Dow Jones Stoxx 600 Index declined 1.8 percent. U.S. stock futures fell.
“Risk appetite remains shaken,” Steven Pearson, a strategist in London at Merrill Lynch & Co., wrote in a note today.
Stimulus Package
U.S. Treasury Secretary Timothy Geithner, speaking yesterday before the Senate Budget Committee, defended his strategy of taking time to work out the details of a plan to shore up the financial industry.
“I completely understand the desire for details and commitments,” he said. “But we’re going to do this carefully.”
As many as 610,000 Americans made initial applications for unemployment benefits in the week ended Feb. 8, following 626,000 the previous week, according to the median estimate of 45 economists’ forecasts in a Bloomberg News survey. Retail sales fell 0.8 percent, extending the longest series of declines since records began in 1992, according to the median estimate in a separate survey of 72 economists. The data are scheduled for release at 8:30 a.m. in Washington.
U.S. lawmakers yesterday agreed on a $789 billion economic stimulus plan, trimming the measure from more than $800 billion. Congress will send the stimulus package to President Barack Obama as early as today, Senate Majority Leader Harry Reid said yesterday.
European Output
Industrial output in the euro region fell 12 percent from a year earlier, the European Union’s statistics office in Luxembourg said today. The decline was larger than the 9.5 percent drop expected by economists in a Bloomberg survey and the biggest since the data series began in 1986.
The euro declined against the dollar as the European Central Bank cut its inflation outlook in 2010 to 1.6 percent from 2 percent, stoking speculation policy makers will lower its main refinancing rate to a record. The bank also reduced its 2010 growth outlook to 0.6 percent from 1.4 percent.
“The report may heighten expectations for an ECB rate reduction,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The euro is likely to weaken further” to $1.2830 and 115.90 yen today, he said.
Investors added to bets the ECB will lower borrowing costs from 2 percent at its March 5 meeting. The yield on the three- month Euribor interest rate futures contract due in March fell to 1.70 percent today from 1.715 percent yesterday.
ECB council member Erkki Liikanen said policy makers may cut the rate at their March meeting, Helsinki-based financial news Web site Taloussanomat.fi reported.
Group of Seven
“Inflation developments and expectations are in line with our price stability target,” Liikanen said. “This gives us room to continue to take measures and it’s possible we’ll move in the next meeting.”
The Group of Seven industrialized nations will meet this weekend in Rome to discuss measures to stabilize the financial system, with finance ministers and central bankers likely to seek assurances the global recession won’t spark a wave of protectionism that deepens the slump, according to Marco Annunziata, chief economist at UniCredit MIB in London.
The G-7 may reinstate a call for China to increase the flexibility of its currency, Makoto Utsumi, a former top currency official at Japan’s Finance Ministry, said last week. “The yuan may be singled out,” he said.
