British pound falls as Bank of England official warns of recession risk
By William L. Watts, MarketWatch
LONDON (MarketWatch) -- The Japanese yen flexed its muscles Tuesday, soaring to multi-year highs on the dollar and the euro despite a warning from Japan's finance minister that the currency's rise could create economic instability.
Minister Yoshihiko Noda, in a news conference, declined to comment on the potential for Japanese intervention in the foreign-exchange market, which traders took as a green light to sell the dollar and the euro against the yen, strategists said.
The dollar (USDYEN 83.9400, -1.1700, -1.3747%) tumbled through a recently set 15-year low to ¥84.13 and traded at ¥84.24 in recent action.
The euro (EURYEN 105.9700, -1.6700, -1.5515%) fell to a nine-year low, hitting ¥106.08, and changed hands in recent action at ¥106.30, down 1.2% on the day.
The dollar index (DXY 83.36, +0.24, +0.29%) , a measure of the U.S. unit against a basket of rival currencies, stood at 83.397, up from 83.117 late Monday.
The yen and, to a lesser extent, the U.S. dollar continue to find safe-haven support on rising concerns about the potential for a slowdown in global economic growth.
"For now, the yen remains a victim of U.S. economic weakness and the ever-narrowing compression between U.S. Treasury and Japanese government bond spreads," said Boris Schlossberg, director of currency research at GFT. "If risk-aversion flows accelerate into September, dollar/yen will continue to drift lower irrespective of any policy moves from Tokyo."
Fears about deflation in the U.S. economy have helped push two-year Treasury yields to record lows, narrowing the spread over comparable Japanese bonds and making the dollar less attractive versus the Japanese currency.
Noda later strengthened his comments somewhat, telling reporters he would "act appropriately" and in line with the Group of Seven's foreign-exchange principles after being informed that the yen had hit a new 15-year high against the dollar, Dow Jones Newswires reported.
The G-7 has previously warned against excess volatility and disorderly movements in currency markets.
Strategists, however, say it is unlikely Japan would be able to convince U.S. or euro-zone authorities to join in any coordinated intervention effort. And strategists are doubtful whether Japanese authorities are prepared to go it alone on intervention. Read about obstacles to coordinated intervention.
Also Tuesday, the president of the Tokyo Stock Exchange said the government must act to alleviate concerns over the strong yen, according to media reports.
"Personally, I don't like the idea of foreign-exchange intervention, but the government needs to act to stop market jitters," Atsushi Saito said at a regular monthly news conference, according to Dow Jones Newswires.
Other catalysts
The U.S. housing market will be in focus later Tuesday.
July existing-home sales data, scheduled for release at 10 a.m. Eastern, are expected to show sales fell by 11% to an annualized pace of about 4.78 million units, down from 5.37 million in June.
The euro (EURUSD 1.2623, -0.0023, -0.1819%) fell to $1.2615 from $1.2684, slipping as risk-averse investors stepped to the sidelines. As European equities traded sharply lower, U.S. stock index futures pointed to a broadly weaker start for Wall Street. Read European Stocks. Read more about the outlook for U.S. stocks in Indications.
Meanwhile, the British pound was under pressure after Martin Weale, a member of the Bank of England's committee setting policy on interest rates, warned in a newspaper interview that Britain runs the risk of slipping back into recession.
Weale, the newest member of the committee, told The Times of London that it would be "foolish" to rule out the possibility of a double-dip recession.
The pound (GBPUSD 1.5405, -0.0087, -0.5616%) traded at $1.5396, down 0.6% from Monday.
"In policy terms, this reinforces what we knew already -- that the [Monetary Policy Committee] has a bias to maintain a very dovish stance for a very long time," said Kit Juckes, chief currency strategist at Societe Generale.
"For sterling, this was the kind of article to help tip [British pound/U.S. dollar] over the same cliff-edge as euro/dollar. With technical levels broken, the downside beckons and the bears will be vocal," he said.
