BLBG: Japanese Yen Gains as Signs of Slowing Economic Growth Boost Safety Bids
The yen rose against the dollar and the euro as signs the economic recovery is slowing boosted demand for the currency as a refuge.
The Australian dollar strengthened against most of its 16 major counterparts before the central bank meets tomorrow. The Dollar Index rose for the first time in three days after earlier touching the lowest level in a month on speculation the Federal Reserve may keep trying to support economic growth. Global stocks declined.
“The yen movements suggest that the overall risk confidence remains relatively fragile,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “Soft U.S. data have been dollar-negative mainly, but today that has been offset today by global equity weakness.”
The yen strengthened beyond 80 per dollar for the first time since May 5 before trading 0.2 percent higher at 80.22 at 11:52 a.m. in New York. The Japanese currency gained 0.2 percent to 117.20 per euro. The euro fell 0.2 percent to $1.4613 after earlier rising to $1.4658, the strongest since May 5.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose 0.1 percent to 73.859. It earlier fell to 73.64, the lowest level since May 5.
The MSCI World Index of stocks fell 0.4 percent, and the Standard & Poor’s 500 Index declined 0.4 percent.
Pared Annual Drop
The yen’s gain helped to pare its decline this year. The currency is down 5.1 percent versus the currencies of nine other developed nations as measured by Bloomberg Correlation-Weighted Indexes. It has still beaten the dollar, which dropped 6.3 percent during the same period, making it the worst performer.
“There is a perception in the market that the global economic recovery might be stalling and investors are assessing what that means to monetary policy among major economies,” said Jeremy Stretch, London-based head of currency strategy at Canadian Imperial Bank of Commerce. “The yen is likely to benefit in this kind of environment.”
The euro is trading 23 percent above its four-year low of $1.1877 reached a year ago tomorrow. With the European Central Bank forecast to raise interest rates further, the shared currency may have more room to gain, according to CIBC’s Stretch.
Producer prices in the euro region rose 6.7 percent in April from a year earlier, after a revised 6.8 percent increase in March, the European Union’s statistics office in Luxembourg said today. The March producer-price inflation rate was the highest since September 2008, the month Lehman Brothers Holdings Inc. filed for bankruptcy.
ECB Meeting
The ECB is expected to leave its 1.25 percent benchmark interest rate unchanged at its June 9 meeting, according to all 52 economists surveyed by Bloomberg. Bank President Jean-Claude Trichet will hold a press conference after the decision. A separate survey of 29 economists shows they expect the rate to rise to 1.75 percent by the end of this year.
“We will see support some support in euro-dollar around $1.4550 because we have Trichet on Thursday and the press conference is likely to be filled with hawkish overtones,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “Any sell-offs in the Aussie are going to be limited by the upside growth potential in that part of the world.”
The Australian dollar traded near a three-week high against the dollar before the Reserve Bank of Australia meets tomorrow. The central bank will keep the key interest rate unchanged for a seventh month tomorrow, according to 23 of 28 economists in a Bloomberg News survey. Five economists predict an increase to 5 percent, from 4.75 percent.
Aussie’s Gains
Australia’s dollar advanced 0.2 percent to $1.0734, from $1.0716 on June 3, when it touched $1.0775, the highest level since May 11. The Aussie traded at 86.08 yen, compared with 86.05 at the end of last week.
Traders expect the RBA to increase the benchmark rate by 26 basis points, or 0.26 percentage point, in the next 12 months, according to a Credit Suisse Group AG index. That compares with a 19 basis point boost forecast for the Fed.
The U.S. central bank has held its key rate at zero to 0.25 percent since December 2008. Its purchases of $600 billion of Treasuries to spur growth are scheduled to end this month.
The dollar’s best monthly performance since November may prove fleeting as a slowing American economy and falling short- term interest rates encourage investors to use the currency to fund investments in higher-yielding assets.
The U.S. currency’s value will be unchanged from current levels by year-end, down from last month’s predicted 2 percent gain, according to analyst forecasts compiled by Bloomberg.
U.S. Manufacturing, Jobs
While the dollar gained against 14 of the 16 most-traded currencies in May, it fell last week after weaker-than-forecast reports on manufacturing, employment and consumer confidence led traders to raise bets that the Fed will keep rates near zero.
Fed Chairman Ben S. Bernanke is scheduled to speak to bankers at the International Monetary Conference in Atlanta tomorrow.
“This week, the key theme is to shift from looking at the economic releases to hearing what global central banks have to say,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. “He’s speaking on the outlook for the economy, so it’ll be particularly important to hear his interpretation of why the data softened.”
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
