BLBG:Euro Climbs to Two-Week High on China Manufacturing Data
The euro rose to a two-week high against the dollar after an industry report signaled China’s manufacturing expanded this month, adding to evidence the world’s second-largest economy is gathering pace.
The shared currency climbed versus 15 of its 16 major peers even after a gauge of euro-area services and manufacturing contracted for a 10th month in November. A preliminary reading of China’s factory activity was at 50.4 in November, compared with a final level of 49.5 in October, according to an HSBC Holdings Plc and Markit Economics purchasing managers’ index, where 50 divides expansion from contraction. U.S. markets are closed today for the Thanksgiving holiday.
“China is looking OK now and that’s marginally positive for the euro,” said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. “It’s going to be a fairly quiet day because of the holiday in the U.S.”
The euro added 0.2 percent to $1.2848 at 9:53 a.m. London time after reaching $1.2868, the highest since Nov. 7. It climbed 0.3 percent to 106.21 yen, after touching 106.58, the strongest since April 30. Japan’s currency slid 0.2 percent to 82.66 per dollar. It earlier depreciated to 82.84, the weakest since April 4.
“Today’s report underscores the halting of China’s slowdown,” said Teppei Ino, an analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “While we have to see further signs of improvement, it’s positive for the Australian dollar.”
Spanish Sale
The euro pared earlier gains against the dollar as Spain sold 3.88 billion euros of debt due in 2015, 2017 and 2021.
A composite index based on a survey of purchasing managers in euro-area services and manufacturing industries was 45.8 this month, from 45.7 in October. That was in line with the 45.7 median estimate of 23 analysts in a Bloomberg News survey. A reading below 50 indicates contraction.
The yen headed for weekly decline of at least 0.4 percent versus all 16 major peers as polls show opposition Liberal Democratic Party leader Shinzo Abe is favored to become Japan’s next prime minister in a Dec. 16 election. The LDP pledged yesterday to achieve nominal economic growth of 3 percent and set an inflation target with the Bank of Japan (8301) should it win next month’s vote.
“I’m worried that if the new government were to follow through the policy the LDP is proposing, the yen will tumble to around 100 per dollar,” said Noriaki Murao, managing director of the marketing group at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The risk of a sudden drop in the yen is increasing.”
Volatility
The yen fell 5.9 percent in the past three months, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The greenback lost 0.4 percent, while the euro gained 2.5 percent.
One-month implied volatility for dollar-yen options, which indicates the expected price changes in the exchange rate, climbed to 9.02 percent today, the highest level since June 13.
The one-month, 25-delta risk-reversal rate for the currency rose to a record 1.085 percent, signaling greater demand for the right to buy the dollar against the yen than to sell the greenback. It was the highest level for data compiled by Bloomberg back to October 2003.
Overseas investors are “seeing this as the trade of the decade, feeling something is different this time around from the past, when they usually lost a bet by selling the yen,” said Masao Okada, head of foreign-exchange sales at Mizuho Corporate Bank Ltd. in Tokyo. “While traders are cutting risk on other currencies, I hear talks that they are leaning toward increasing positions related to the yen.”
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net.
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net.
