BLBG: Yen Pares Weekly Advance Versus Euro, Dollar as Stocks Rise
The yen fell for a second day against the euro and the dollar, paring a weekly advance, as stocks rose on speculation governments will expand efforts to revive lending.
The Japanese currency declined most versus the pound and Australian dollar amid speculation the Obama administration will use government cash to cut borrowing costs for homeowners. The euro headed for a weekly drop against the dollar as a report showed Europe’s economy shrank in the fourth quarter by the most in at least 13 years.
“Risk is floating back into the market, sentiment is getting better for higher-yielding currencies,” said Geoffrey Yu, a London-based foreign-exchange strategist at UBS AG, the world’s second-biggest currency trader. “Investors are buying after the sell-off earlier this week.”
The yen fell to 91.64 by 10:30 a.m. in London, from 90.94 late in New York yesterday. The Japanese currency was at 118.26 versus the euro, from 116.95 yesterday and 118.85 a week ago. The euro was at $1.2900, up from $1.2861 yesterday and down from $1.2940 a week ago.
The U.S. Congress is set to give final approval today on the economic stimulus package after lawmakers worked out last-minute disagreements over executive compensation and taxes. The House and Senate scheduled votes on the measure.
Stocks rose, curbing demand for the Japanese currency as a refuge from the financial turmoil. The MSCI World Index advanced 0.2 percent and Standard & Poor’s 500 Index futures expiring in March climbed 1.2 percent.
Risk Version Easing
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock price changes that is used as a measure of risk aversion, fell 7.4 percent to 41.25 yesterday.
“The recent moves of such indicators as VIX and the rise in stocks seem to suggest risk aversion is gradually easing,” said Akio Yoshino, chief economist at Societe Generale Asset Management Ltd. “This should give investors less reason to buy the yen.”
Finance ministers and central bankers from the Group of Seven major industrial nations meeting in Rome today and tomorrow will discuss exchange-rate developments, a U.S. Treasury official told reporters on Feb. 11 in Washington on condition of anonymity, declining to discuss specific currencies.
Japan’s Finance Minister Shoichi Nakagawa said today in Tokyo that he isn’t planning to bring up the subject of currencies at the meeting.
European Slump
The euro headed for a weekly decline after the European Union’s statistics office said gross domestic product in the 16- nation region economies declined 1.5 percent. That was more than the 1.3 percent economists expected, according to the median of 31 estimates in a Bloomberg News survey, and the most since euro- area GDP records began in 1995.
The economies of both Germany and France, the two largest in the euro region, contracted by the most in more than two decades in the latest quarter. German GDP declined 2.1 percent and the French economy shank 1.2 percent, their national statistics offices said.
“A stream of European data including the fourth-quarter GDP will be released, and downside surprises are likely to be common place,” analysts led by Hans-Guenter Redeker, London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a research note yesterday. “The euro is already under pressure.” The euro will decline to $1.20 and to 94 yen by the end of June, BNP Paribas forecast.
ECB Rate Cuts
Investors added to bets the European Central Bank will reduce the 2 percent benchmark rate at its March 5 meeting. The yield on the three-month Euribor interest-rate futures contract due in March fell to 1.70 percent today. It was 1.715 percent on Feb. 6.
The pound was poised for its first weekly loss against the euro since Jan. 23 after Bank of England Governor Mervyn King said this week the economy is in a “deep recession” that may spur policy makers to lower the 1 percent benchmark rate again.
The British currency was at 88.77 pence per euro, rising 1.6 percent on the day, from 87.52 pence a week ago. It traded at $1.4524, from $1.4269 yesterday and $1.4787 a week ago.
The U.K. central bank cut its forecasts for U.K. gross domestic product and inflation this week and said the risks to economic growth are “heavily to the downside.”
“The pound is still seen vulnerable as it lugs around the attendant baggage of a slumping economy and further interest rate cuts,” Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore, wrote in a research note today.
