The yen was the worst performer among the 17 most-traded currencies as European stocks rebounded and data showed the euro-region economy is improving, boosting demand for higher-yielding assets. Japan’s currency retreated from yesterday’s one-week high against the euro. Euro-area industrial output rose for a fifth month in February, stoking bets that the European Central Bank will tighten policy further after last week’s interest-rate increase. China’s yuan rose to a 17-year high after a report said the government may raise banks’ reserve ratios. Sweden’s krona rose as the government boosted its economic forecasts. “The interest-rate differential story is part of the move,” said Jeremy Stretch, executive director of foreign- exchange strategy at Canadian Imperial Bank of Commerce in London. “Japanese investors are going to continue looking for higher returns. That’s going to put pressure on the yen. We also saw the yen make reasonable strides yesterday on the back of risk aversion. Today we’re seeing a move back towards risk-on.” The yen depreciated 0.8 percent to 122.01 per euro as of 7:16 a.m. in New York, down from as high as 120.16 yesterday, which was the strongest level since April 5. Japan’s currency slid 0.6 percent to 84.08 per dollar. The euro gained 0.2 percent to $1.4511 after reaching $1.4520, matching yesterday’s high, which was the strongest since January 2010. The Stoxx 600 index of equities rose 0.8 percent after tumbling 1.7 percent yesterday. Nuclear Crisis The yen rallied yesterday after earthquakes shook buildings in Tokyo and Japan raised the severity rating on the nuclear crisis that began last month at a damaged power plant, reviving demand for the safest assets. The currency remained above 80 per dollar, a level it has failed to breach since March 18, when Group of Seven nations acted to curb gains in the yen and support the Japanese economy. “The market’s view that the global economy remains on a recovery track is unlikely to push stocks and commodity prices down much further,” said Daisaku Ueno, president of Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “That may reduce demand for the yen as a refuge.” Production in the euro area rose 0.4 percent in February, European Union statistics showed today. That was still less than the 0.8 percent median forecast in a Bloomberg survey. Commerce Department figures scheduled for release today are expected to show U.S. retail sales gained 0.5 percent in March, according to a separate survey. European Rates The euro stayed within one cent of the 15-month high reached earlier on speculation the ECB will outpace the Federal Reserve as it raises rates to combat inflation. ECB President Jean-Claude Trichet and colleagues boosted the main refinancing rate on April 7 to 1.25 percent from a record low 1 percent, where it had been since 2009, and left the door open for further increases. The ECB will raise its benchmark by 109 basis points over the next 12 months, according to a Credit Suisse Group AG index based on swaps. A similar gauge for the U.S. predicts the Fed will increase rates by 35 basis points over the same period. “While the Fed is on the sidelines and the ECB is still in play, that should be supportive for the euro,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s largest lender. Fed policy “should keep the U.S. dollar pretty weak, and be reflected in a strong euro as the main alternative to the dollar.” Job Creation Fed Bank of New York President William C. Dudley said yesterday the U.S. economy is “far away” from what the central bank aims for on employment and job creation. New Zealand’s dollar rose to best performer against the dollar after the Real Estate Institute said its index of house prices increased for a second month in March. Australian dollar rallied from near a one-week low versus the yen after an industry report showed consumer confidence improved in April. “On the part of both Aussie and kiwi, it’s still the fundamentals that provide support and investors are looking for yield,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. New Zealand’s dollar advanced 0.9 percent to 79.04 U.S. cents, while Australia’s currency rose 0.4 percent to $1.0498. China’s yuan snapped two days of losses as the Economic Information Daily reported that banks’ reserve ratios may be increased by 50 basis points on either April 15 or April 22. Yuan, Krona The Chinese consumer price index rose 5.2 percent in March, the most since July 2008, according to the median estimate of economists in a Bloomberg News survey before official data due on April 15. “China doesn’t want to see inflation flying out of control, and the tools it can use are limited,” said Tommy Ong, senior vice-president of treasury and markets at DBS Bank (Hong Kong) Ltd. “Besides interest rates and banks’ reserve requirements, the currency will need to play a large part.” The yuan, whose daily trading range is restricted by the government, strengthened 0.1 percent to 6.5333 per dollar after rising to 6.5320, the strongest level since the country unified official and market exchange rates at the end of 1993. Sweden’s krona appreciated versus the euro and dollar after the government raised its economic growth forecast for the next two years, spurring speculation that interest rates will rise. The krona gained 0.7 percent versus the euro to 9.0585 and appreciated 0.9 percent against the dollar to 6.2427. To contact the reporters on this story: Garth Theunissen in London gtheunissen@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

Source