BLBG:Yen Weakens on Outlook for Fed to Maintain Stimulus; Pound Drops
The yen fell against all 16 of its major peers as speculation the Federal Reserve doesn’t consider the recovery strong enough to start removing stimulus damped demand for the relative safety of Japan’s currency.
The Dollar Index halted a six-day gain after Fed Bank of Richmond President Jeffrey Lacker said yesterday the U.S. central bank isn’t close to cutting bond holdings bought during the quantitative-easing program. The euro rose against the dollar as economic confidence in the countries that share the currency improved more than economists predicted. The pound dropped as Britons’ disposable income plunged in the first quarter by the the most in 25 years.
“Calmer markets have helped more risky currencies perform better,” undermining the yen, said Alvin T. Tan, a director of foreign-exchange strategy at Societe Generale SA in London. “The Fed is not really backtracking but it is trying to calm the market. We are not so sure that the volatility and turbulence in the market has totally passed.”
The yen weakened 0.5 percent to 98.18 per dollar at 7:10 a.m. New York time. It fell 0.6 percent to 127.88 per euro. The 17-nation currency gained 0.1 percent to $1.3023 after falling yesterday to $1.2985, the weakest since June 3.
The Dollar Index, which IntercontinentalExchange Inc. uses to monitor the greenback against the currencies of six U.S. trade partners, was little changed at 82.926 from 82.977 yesterday, when it climbed to the highest close this month.
Sluggish Growth
New York Fed President William C. Dudley and Atlanta Fed President Dennis Lockhart are both due to speak today after Lacker said in a Bloomberg Television interview that he expects “a couple more years of sluggish growth.”
Minneapolis Fed President Narayana Kocherlakota said yesterday he favors continuing bond purchases until unemployment falls below 7 percent, which he doesn’t expect until the second half of next year. The same day, Bank of England policy maker David Miles said the U.K.’s economy may still need support and renewed his call for an extension of the central bank’s 375 billion-pound ($573 billion) QE program.
The euro rallied from a three-week low as the European Commission in Brussels said an index of executive and consumer sentiment rose to 91.3 from 89.5 in May. Economists had forecast a reading of 90.4 for June, based on the median of 32 estimates in a Bloomberg News survey.
Dollar-Bullish
“What the Fed is doing is of significance and is dollar-bullish,” said Simon Derrick, London-based chief currency strategist at Bank of New York Mellon Corp. “If they get it wrong it will prove to be dollar-positive anyway” because investors will buy the greenback as a haven, he said. It may extend gains and trade between $1.20 around $1.25 per euro in December, with a bias to the stronger end of that range, he said
The Bloomberg U.S. Dollar Index that represents 10 major currencies weighted by liquidity and trade flows has climbed 1.3 percent since June 19, when Fed Chairman Ben S. Bernanke said the central bank was prepared to begin whittling its QE program.
Prospects for an end to Fed stimulus have pushed currency volatility to the highest in more than a year. JPMorgan Chase & Co.’s Global FX Volatility Index was at 11.31 percent after reaching 11.96 percent on June 24, the most since June 2012. The measure has averaged 9.17 percent this year.
The pound dropped to a three-week low versus the dollar as data revisions showed U.K. gross domestic product shrank more than previously estimated from its peak in 2008 to the depths of the recession.
Sterling ‘Softened’
“Sterling has softened,” said Jane Foley, a senior currency strategist at Rabobank International in London. “Some people were expecting an upward revision and that didn’t happen,” she said, referring to the GDP data. “The outlook for Fed tapering will be key as we progress into the summer.”
The pound fell 0.2 percent to $1.5288 after sliding to $1.5264, the lowest level since June 3. The U.K. currency weakened 0.3 percent to 85.18 pence per euro.
Real household disposable incomes fell 1.7 percent from the previous three months, the most since 1987, the Office for National Statistics said in London today. Gross domestic product rose 0.3 percent in the first quarter of this year, matching a previous estimate, the statistics office said.
South Africa’s rand rose versus all of its most-traded peers. It’s the second-worst performer of 16 major currencies this quarter, with only the Australian dollar falling more. The euro has climbed versus all of its peers in the period.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
