BLBG: Yen Drops as European, Asian Stock Gains Reduce Safety Demand
The yen declined to a five-month low against the euro and dollar as European and Asian stocks gained on speculation the global financial crisis is easing, damping demand for the currency as a refuge.
The yen fell against all of the 16 most actively traded currencies tracked by Bloomberg, sliding against New Zealand’s dollar to the lowest since November, as gold dropped and the cost of insuring against company-bond defaults declined. The euro rose to a one-week high against the dollar. The pound headed for $1.50 for the first time since Jan. 12.
“Risk appetite seems to be improving,” said Adam Cole, global head of currency strategy in London at Royal Bank of Canada. “That’s bad news for currencies like the yen or the dollar. It’s too early to assume the worst is over, but in the very near term, perhaps investors might want to go for risk proxies such as the Australian and New Zealand dollars.”
The yen depreciated 1 percent to 136.58 per euro at 7:50 a.m. in New York, from 135.26 on April 3. It touched 137.41, the weakest level since Oct. 20. Japan’s currency declined 0.7 percent to 101.02 per dollar, from 100.31 last week, and reached 101.44, the weakest level since Oct. 21. The euro advanced for a third day against the dollar, climbing 0.2 percent to $1.3516 from $1.3486.
Federal Reserve Chairman Ben S. Bernanke said on April 3 programs to unfreeze credit markets “are having the intended effect.” Fed Governor Kevin Warsh will speak on financial markets and the economy at 1 p.m. in Washington.
New Zealand’s dollar rose as high as 60.35 yen, the strongest since Nov. 5, from 58.76 yen. Australia’s dollar strengthened to as much as 72.86 yen, the highest level since Oct. 14, from 71.75 yen.
VIX Falls
The MSCI World Index of shares climbed 0.5 percent for a fifth day of gains as the Nikkei 225 Stock Average rose 1.2 percent and every major equity index in Europe advanced. The contract on the Standard & Poor’s 500 Index was little changed. Gold for immediate delivery slipped as much as 2.1 percent to $874.08 an ounce. Credit-default swap contracts on the Markit iTraxx Crossover Index of 45 companies with mostly high-risk, high-yield credit ratings decreased 15 basis points to 905, according to JPMorgan Chase & Co.
The VIX index, a measure of market volatility known as Wall Street’s “fear gauge,” closed below 40 on April 3, the first time since January, indicating traders are becoming more confident about stock market advances.
“The financial markets remain firmly in rising risk- appetite mode,” Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a report. “Equity markets continue to advance higher on optimism that the global economy is emerging from the worst point of the crisis.”
Emerging-Market Bet
Emerging-market currencies will strengthen against the U.S. dollar as investors seek higher-yielding assets on signs the global economy is stabilizing, according to Citigroup Inc., the world’s fourth-biggest currency trader.
South Korea’s won, India’s rupee, Brazil’s real and the Mexican peso will appreciate against the dollar, Citigroup strategists Michael Hart in London and New York-based Todd Elmer wrote in a research note today. Turkey’s lira, the Polish zloty, South Africa’s rand and the Taiwan dollar will also rise against the U.S. currency and the Swiss franc, the strategists wrote.
Speculation economic-stimulus packages will reignite inflation is prompting some of the biggest bond funds to buy index-linked securities. At BlackRock Inc., Vanguard Group Inc., Pacific Investment Management Co. and Pictet & Cie Banquiers, concerns are growing that policy makers will struggle to control price growth once economies start to recover.
‘Primary Victim’
In the U.S., the consumer price index “could go back to 4 percent or even higher,” said Brian Weinstein, who oversees $9 billion in inflation bonds at New York-based BlackRock, the largest publicly traded U.S. fund manager. At the least, “the TIPS market is showing that we’re going back to trend inflation,” he said.
“The yen is the primary victim of widespread optimism about the global economy,” said Tomohiro Nishida, a currency dealer in Tokyo at Chuo Mitsui Trust & Banking Co. “The dollar also took a hit from the same development.”
The yen lost more than 7 percent against the euro since the start of this year.
Demand for the yen also weakened after North Korea launched a rocket yesterday over the Sea of Japan.
“Geopolitical risk” may add to the yen’s decline, said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank.
South Korean Won
The North Korean rocket flew over Japan on a trajectory into the Pacific Ocean, according to a statement from the Japanese Prime Minister’s Office. U.S. President Barack Obama said yesterday the firing of the Taepodong 2 was “provocative” and a “clear violation” of a United Nations Security Council resolution.
South Korea’s won rose 2.4 percent to 1,309.25 per dollar, after four weeks of gains, as demand increased for emerging- market assets following the Group of 20’s decision last week to strengthen the International Monetary Fund.
The euro gained versus the dollar after European Central Bank Executive Board Member Lorenzo Bini Smaghi said the common currency is shielding the region against the worst of the global financial turmoil. The ECB cut its benchmark rate by a quarter- percentage point to 1.25 percent on April 2, compared with a half-point reduction expected in a Bloomberg survey.
Rate Differential
“Investors seem to be focusing on rate differentials, so the fact that the ECB lowered rates by only 25 basis points is positive for the euro,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second- largest lender. “Investors also are becoming more inclined to take on risk, which is leading to euro appreciation.”
The euro may rise to $1.36 today, Muramatsu said. Benchmark rates are 0.1 percent in Japan, 0.5 percent in the U.K. and zero to 0.25 percent in the U.S.
ECB President Jean-Claude Trichet said on April 3 that the central bank’s target lending rate “could in a very measured way go down” from the 1.25 percent level.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 2,265 on March 31, compared with net shorts of 5,458 a week earlier, figures from the Commodity Futures Trading Commission showed. It’s the first time that speculators were net long on the euro since July.
Futures are agreements to buy or sell assets at a set price and date. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange as of each Tuesday.
Analysts and investors often follow changes in speculators’ positions because such transactions can reflect an expectation of a change in prices.
The pound advanced against the dollar and euro as the FTSE 350 Banks Index rallied as much as 5.4 percent and HSBC Holdings Plc said investors bought about 97 percent of the shares on sale in its 12.9 billion-pound sale.
The British currency strengthened to $1.4926 from $1.4836 last week and to 90.60 pence per euro from 90.84.
