BLBG: Yen, Dollar Rise on China Measures, EU Ministers Budget Meeting
By Paul Dobson and Yasuhiko Seki
April 16 (Bloomberg) -- The yen and the dollar rose as investors sought the safest currencies after China took steps to cool its economy and European Union ministers met to discuss ways to curb budget deficits that have roiled bond markets.
The euro was set for its second week of losses against the yen amid speculation Greece will be forced to activate a 45 billion-euro ($61 billion) rescue package as it struggles to rein in the euro region’s widest budget shortfall. The yen and the Singapore dollar were poised for weekly gains versus the U.S. currency on bets China will scrap the yuan’s peg to cool economic growth. The dollar rose as stocks weakened after Google Inc. posted first-quarter earnings that disappointed investors.
“There’s some risk aversion in the market because of the uncertainty about the EU meeting and whether Greece will ask for the aid,” said Marcus Hettinger, a foreign-exchange analyst at Credit Suisse Group AG in Zurich. “That’s driving the dollar a little bit higher.”
The yen appreciated to 125.62 per euro as of 7:20 a.m. in New York, from 126.27 yesterday, after reaching 125.06, the strongest level since April 9. The dollar strengthened to $1.3528 per euro, from $1.3573.
Japan’s currency climbed to 92.84 per dollar, from 93.03, up 0.4 percent this week. The yen pared its gain after Reuters reported that Motohisa Ikeda, a Democratic Party of Japan lawmaker, said the Bank of Japan should take steps to achieve a 2 percent inflation target.
“Breaking deflation is the number-one priority and it’s firmly believed that to beat deflation you need a weaker yen,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “This is a theme that is not going to go away.”
Athens Meetings
Singapore’s dollar rose 1.3 percent this week to S$1.3720 per U.S. dollar, set for a third weekly gain, after the nation raised its economic growth and inflation forecasts and the central bank unexpectedly revalued its currency.
Greek Prime Minister George Papandreou yesterday asked for a meeting with the EU, the International Monetary Fund and the European Central Bank. Talks will begin in Athens on April 19. Spanish Finance Minister Elena Salgado told reporters in Madrid today that Greece has taken “the first steps” in requesting financial assistance.
The euro region is aiming to prevent the first default of a member nation and offered to put up two-thirds of the package to sustain Greece and protect a currency that has weakened against all 15 of its most-traded peers this year. While EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday he’s confident that member nations are committed to the plan, some nations will need to have parliamentary votes on their contribution.
‘Under Pressure’
“No one believes the funds for Greece will be raised easily and the scope for extending this bailout or providing new funds if they are required at a later stage for other countries is low,” Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney, said in an investor note. “Consequently, the euro should remain under pressure.”
The plan needs to overcome opposition, including a threat from a group of German professors to file a lawsuit with the country’s Constitutional Court to block loans to Greece.
“We have no confidence in the performance of the euro,” a team led by Hans-Guenter Redeker, global head of foreign- exchange strategy at BNP Paribas SA in London, said in an e- mailed report. “The German government effectively paying into a bailout process could theoretically catapult Germany out of the currency union” should the court uphold the challenge, they said. “We suggest selling the euro into any rebound.”
No Aid Request
Greece hasn’t asked for financial aid, Luxembourg Prime Minister Jean-Claude Juncker said at a press conference in Madrid, where he chaired the meeting of finance ministers.
The MSCI Asia Pacific Index of stocks fell 0.8 percent and the Stoxx Europe 600 Index fell as much as 0.6 percent, before trimming losses. Google yesterday reported first-quarter net income rose 37 percent to $1.96 billion, or $6.06 a share. Excluding some costs, profit was $6.76 a share. Estimates compiled by Bloomberg were as high as $6.91. Google fell as much as 5.3 percent yesterday in after-hours trading to $563.50.
The pound fell for the first day in four against the dollar as U.K. Prime Minister Gordon Brown and Conservative Party leader David Cameron failed to dispel concern that next month’s election may produce a government too weak to reduce the budget deficit.
Liberal Democrat Nick Clegg emerged as the winner of the first televised debate between party leaders, three instant polls found. Two more debates will follow in the next two weeks.
‘Increased Volatility’
“The pound will continue to move with increased volatility, driven by changing prospects for the forthcoming election,” said Kazumasa Yamaoka, a senior analyst in Tokyo at GCI Capital Co., which advises on foreign currency, overseas investments and hedge funds.
A YouGov daily poll published before the debate showed the Conservative lead narrowing to six points from nine, with Cameron’s party at 37 percent and Labour at 31 percent. The Liberal Democrats had 22 percent.
The U.K. currency declined to $1.5462, from $1.5496 yesterday, when it touched $1.5524, the highest level since Feb. 23. The pound is still set for a third weekly advance.
Most Asian currencies rose against the dollar this week as traders bet the yuan may rise more than 3 percent in the next 12 months after China’s economy expanded at the fastest pace in almost three years. China’s government increased requirements for down payments on some home purchases.
Yuan forwards were at 6.6208 per dollar, compared with 6.6130 yesterday. China has pegged its currency at about 6.83 against the dollar since July 2008, after allowing it to rise 21 percent in the previous three years. Singapore’s central bank this week announced a one-time revaluation.
“China may revalue the yuan sooner rather than later as part of its ongoing exit from stimulus policies,” said Toshiya Yamauchi, senior foreign-exchange analyst in Tokyo at online currency trading company Ueda Harlow Ltd. “This will also fuel some upward pressure on the yen.”
To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
