BLBG: Yen Advances Against Dollar as Japan’s Export Slump Slows
The yen rose against the dollar after a report showed a slump in Japan’s exports slowed in March, adding to signs the worst of the recession may be over.
The pound fell against all of the other major currencies as Chancellor of the Exchequer Alistair Darling said the country will borrow 269 billion pounds ($392 billion) more than previously forecast and increase income taxes as the worst U.K. slump since World War II saps revenue. The Australian dollar weakened against the greenback as annual inflation slowed, giving the central bank more room to lower interest rates.
“The focus was on yen outperformance,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “The downward spiral of trade starts to abate here.”
The yen advanced 0.6 percent to 98.16 per dollar at 10:47 a.m. in New York, from 98.73 yesterday. The yen traded at 127.83 per euro, compared with 127.81 yesterday, when it reached 126.09, the strongest level since March 16. The dollar depreciated 0.6 percent to $1.3023 per euro from $1.2948. It earlier climbed to $1.2886, the strongest level since March 16.
Traders bought the euro versus the pound, pushing the 16- nation European currency up against the dollar, according to Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York.
“Today’s moves are bearish U.S.A. and bearish U.K.,” he said.
Yen Versus Pound
Japan’s currency traded near a five-week high versus the euro after a government report showed the nation’s overseas shipments fell 45.6 percent last month from a year earlier, compared with February’s unprecedented 49.4 percent plunge. Economists predicted a 46.4 percent drop.
The pound fell 1.1 percent to $1.4519 as Darling told Parliament in London that the U.K. economy will shrink by 3.5 percent this year, more than twice the estimate in November. Against the euro, the pound dropped 1.6 percent to 89.69 pence.
The U.K.’s deficit will total 703 billion pounds during five fiscal years through April 2014, compared with 434 billion pounds forecast in November, Darling said in his annual budget statement to Parliament in London. This year’s shortfall of 175 billion pounds, or 12.4 percent of gross domestic product, is the biggest in the Group of 20 nations and more than the 12 percent expected in the U.S.
Darling increased the tax on people earning more than 150,000 pounds a year to 50 percent and withdrew breaks for pension contributions for that bracket.
Bullish No More
“I am turning 180 percent on my sterling-bullish call,” Neil Jones, head of European hedge fund sales in London at Mizuho Corporate Bank Ltd., wrote in a research note to clients. “Investment will exit the U.K. economy in search of lower tax regimes.”
The dollar fell yesterday against the euro after Treasury Secretary Timothy Geithner told a congressional panel the “vast majority” of U.S. banks have more capital than needed, reducing demand for the safety of the world’s main reserve currency. He said there are signs credit markets are “thawing.”
Global policy makers may need to alter their strategies to combat the financial and economic crisis as conditions “evolve,” Geithner said in a speech today.
The Federal Reserve plans to release results of stress tests on banks on May 4. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the recession worsen.
“The markets are very suspect of the stress test,” said ING’s Kassel.
Loan Losses
Worldwide losses tied to loans and securitized assets may reach $4.1 trillion by the end of 2010 as the recession and the credit crisis exact an increasing toll on financial institutions, the International Monetary Fund said yesterday.
The Washington-based IMF said in a new forecast released today that the world economy will shrink 1.3 percent this year, compared with its January projection of 0.5 percent growth. The lender predicted expansion of 1.9 percent next year instead of its earlier 3 percent projection.
“The IMF’s gloomy prognosis is an added factor helping to define the risk appetite environment,” Steve Pearson, a London- based currency strategist at Bank of America-Merrill Lynch, wrote in a note today. “This is leaving foreign-exchange price action biased toward dollar and yen outperformance.”
Australia’s dollar weakened 1.1 percent to 70.33 U.S. cents and 2.1 percent 68.78 yen after a report showed the nation’s inflation rate slowed to an 18-month low, giving policy makers more room to cut the 3 percent target lending rate.
“With inflation working lower, they would be able to keep interest rates at low levels for a prolonged period,” said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. “We are penciling in at least one more rate cut.”
Australia’s consumer price index rose 2.5 percent in the first quarter from a year earlier, after gaining 3.7 percent in the fourth quarter, the Bureau of Statistics said in Sydney.
