BLBG: Yen, Dollar Drop as Signs of Global Recovery Buoy Higher-Yielding Assets
The yen fell against most of its major counterparts while the dollar and Swiss franc weakened as signs the global recovery is gaining momentum damped demand for assets perceived to have the lowest risk.
Japan’s currency dropped for the first time in four days versus the euro as stocks rose after Australia’s manufacturing expanded for a seventh month and Britain’s factory growth slowed less than forecast. The dollar fell toward a three-month low versus the euro before a report forecast to show U.S. manufacturing expanded in July at a slower pace.
“There is a bit of a relief rally in risk,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London. “The uncertainty of the global economy has pushed us back into the world of one trade, where currencies are trading as risk proxies.”
The yen weakened 0.4 percent to 113.46 per euro at 7:24 a.m. in New York, from 112.84 on July 30. Japan’s currency declined 0.3 percent to 86.75 per dollar, from 86.47. The dollar slid 0.2 percent to $1.3076 per euro, from $1.3052, after reaching $1.3107 on July 29, the weakest level since May 4.
The pound rallied as much as 0.8 percent to $1.5819, the highest level since Feb. 4, as a report showed the U.K.’s manufacturing growth slowed in July less than economists forecast in a sign the nation’s economy is still expanding.
Britain’s Manufacturing
A gauge based on a survey of companies by Markit Economics and the Chartered Institute of Purchasing and Supply was at 57.3, compared with 57.6 in June, London-based Markit said in an e-mailed statement today. The median estimate of 26 economists in a Bloomberg News survey was for a reading of 57. A reading above 50 indicates expansion.
Australia’s dollar advanced 1.2 percent to 79.08 yen after the Australian Industry Group and PricewaterhouseCoopers said an index of manufacturing rose 1.5 points to 54.4 in July. A figure above 50 shows the industry is expanding. New Zealand’s dollar gained 1.2 percent to 63.53 yen.
China’s Purchasing Managers’ Index was at 51.2 in July, compared with 52.1 in June, the Federation of Logistics and Purchasing said yesterday. Readings above 50 show expansion.
“We feel pretty positive about the outlook in Asia, particularly in China,” said Katie Dean, a senior economist in Melbourne at Australia & New Zealand Banking Group Ltd. “The Aussie and kiwi will be supported.”
The MSCI Asia Pacific Index of shares rose 1.1 percent, and the Stoxx Europe 600 Index of equities advanced 2 percent, boosted by a pre-tax profit that almost doubled for HSBC Holdings Plc and a 31 percent gain in net earnings for BNP Paribas SA.
Yen in 2010
The yen has appreciated versus all of its major counterparts this year as speculation the global recovery will falter stoked demand for the safest assets. The yen appreciated to 85.95 on July 30, its strongest level versus the dollar since Nov. 30, on concern U.S. growth is slowing.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, decreased for a fourth straight day on speculation the recovery in the world’s largest economy is lagging behind other regions. The index dropped 0.1 percent to 81.422 after reaching 81.354, the lowest level since April 27.
The Institute for Supply Management’s manufacturing gauge in the U.S. fell to 54 in July from 56.2 in the previous month, according to the median forecast of 62 economists in a Bloomberg News survey. The report is due at 10 a.m. New York time.
Slower U.S. Growth
Economic growth in the U.S. slowed to a 2.4 percent annual rate in the second quarter from a revised 3.7 percent pace in the first three months of the year, the Commerce Department reported July 30.
The franc weakened after figures from the Washington-based Commodity Futures Trading Commission showed futures traders reduced bets the currency would gain against the dollar last week. The difference in the number of wagers by hedge funds and other large speculators on an advance in the franc compared with those on a drop was 6,216 on July 27, compared with net longs of 15,113 a week earlier.
The Swiss currency declined 0.3 percent to 1.0447 per dollar and weakened 0.5 percent to 1.3652 per euro.
FX Concepts LLC, the hedge fund that bought the euro in June just as it began a 9.7 percent surge against the dollar, says it’s almost time to get out of Europe’s common currency.
The firm, which manages $8 billion in assets, expects the euro’s advance from a four-year low on June 7 to come undone by September, partly because European austerity programs will start to weigh on growth.
“Austerity is really bad for growth,” said Jonathan Clark, vice chairman at New York-based FX Concepts, the world’s biggest currency hedge fund. “In the U.S., austerity is mainly on the state level, but in Europe they are whole-hog into cutting spending to reduce deficits. Under a pessimistic scenario, the European currencies are in a lot of trouble.”
