BLBG:Dollar, Yen Advance as Asian Equities Decline Before U.S. Inflation Data
The dollar and yen gained against most major counterparts on prospects a report today will show that U.S. inflation isn’t weak enough for the Federal Reserve to consider a third round of so-called quantitative easing.
The yen rose against the Australian and New Zealand dollars as Asian equities fell, damping demand for higher-yielding assets. The Fed wrapped up its second round of bond buying, known as QE2, in June. The franc held yesterday’s gain against the euro on speculation the Swiss National Bank can’t halt its advance amid slumping growth in Europe and the U.S. The pound depreciated versus the dollar before spending data that may add to evidence the U.K. economy is losing momentum.
“If inflation comes in around consensus, it’s really hard to make the case for QE3 near term,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “It makes it harder for the Fed to ease monetary policy further and so is supportive for the U.S. dollar.”
The dollar rose to $1.4398 per euro as of 12:07 p.m. in Tokyo from $1.4426 in New York yesterday. It was little changed at 76.61 yen. The 17-nation euro declined to 110.30 yen from 110.50 yesterday. The Swiss franc traded at 1.1389 per euro from 1.1398 yesterday, when it gained 0.6 percent.
U.S. consumer prices, excluding volatile food and fuel costs, climbed 0.2 percent in July, according to a Bloomberg News survey of economists. The gauge climbed 0.3 in each of the previous two months, the biggest back-to-back gain in three years.
Jobless Benefits
With the economic recovery showing signs of stress, the Fed on Aug. 9 pledged to keep its benchmark interest rate at a record low at least through mid-2013. Charles Plosser and Richard Fisher, two Fed officials who dissented from the central bank’s latest policy statement, yesterday spoke out against unnecessary stimulus measures. Fisher also said monetary easing shouldn’t be used to boost stocks.
“Right now the U.S. economy could use a boost to growth but the inflation story is a lot less helpful,” said Callow. The CPI data may dampen expectations for “fresh liquidity injections to boost equity markets, so it’s potentially a negative for equities. In itself, that should be a positive for the U.S. dollar.”
The yen was 0.5 percent from a postwar record set March 17 against the greenback before Labor Department data that will show the number of applications for unemployment insurance payments in the U.S. climbed 5,000 in the week ended Aug. 13 to 400,000, according to economists in a Bloomberg survey.
The MSCI Asia Pacific Index of stocks dropped 0.8 percent.
‘Upward Pressure’
The yen has risen beyond the level that prompted Japan to unilaterally sell the currency on Aug. 4, its first intervention in currency markets since March.
Japan’s Finance Minister Yoshihiko Noda warned on Aug. 14 he’s ready to take “bold action” to stem a yen advance that risks slowing the nation’s recovery. Takehiko Nakao, a senior currency official at the Finance Ministry, said he discussed foreign-exchange issues today with Bank of Japan Executive Director Hiroshi Nakaso. Nakao declined to comment on whether they discussed intervention in the currency market.
“Upward pressure for the yen still remains,” said Tsunemasa Tsukada, chief manager for currencies and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest financial group by market value. “Yen may strengthen further should the market consensus come to say there will likely be a recession in the U.S. and European economies. Many of market participants may become cautious of another intervention when the yen reaches the 75 level.”
Franc Gains
The franc held yesterday’s gains against the euro after European Central Bank Governing Council member Ewald Nowotny said he’s afraid of entering a period of slow growth and low inflation similar to the 1990s development in Japan, according to an interview in Austrian newspaper WirtschaftsBlatt yesterday.
The franc rose yesterday against 13 of its 16 major peers after Switzerland’s central bank refrained from pegging it to the euro or adopting a target. The SNB said yesterday it will boost liquidity to the money market, expanding banks’ sight deposits, and also continue to buy SNB Bills and use foreign- exchange swap transactions. Swiss Finance Minister Eveline Widmer-Schlumpf said any decision on a target for the currency is up to the central bank.
Risk Aversion
“The market is still leaning toward risk aversion,” said Daisaku Ueno, Tokyo-based president of Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency broker. “Unilateral efforts from the Swiss authorities to stabilize currency gains are unlikely to last for long.”
The franc and the yen tend to strengthen during periods of financial stress because their export-reliant economies don’t need foreign capital to balance current accounts -- the broadest measure of trade. The dollar benefits as the world’s reserve currency.
The franc has advanced 9.7 percent over the past three months, the biggest gainer among 10 major-economy currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The yen has risen 4.6 percent and the dollar is down 2.6 percent.
The pound weakened against the dollar for the first time in six days before a report today forecast to show U.K. retail sales rose in July at a slower pace. Sales including fuel rose 0.3 percent from June, when they gained 0.7 percent, the Office for National Statistics will report, according to the median estimate of economists surveyed by Bloomberg.
The pound fell 0.2 percent to $1.6519.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
