BLBG: Yen Declines on Government Stimulus, Paring Weekly Haven Gain
The yen fell against most of the major currencies on bets global governments will expand efforts to revive growth, paring a weekly rally against the euro and pound spurred by haven demand.
Japan’s yen tumbled more than 1.5 percent versus the Brazilian real and New Zealand dollar on speculation President Barack Obama will use government cash to cut borrowing costs for homeowners. The Group of Seven major industrial nations may discuss exchange rates during a meeting beginning today.
“There was a lot of talk about the proposed measures to provide government subsidies to homeowners in terms of reducing their mortgage rates,” said Robert Blake, head of strategy for North America in Boston at State Street Global Markets LLC, which has about $12 trillion in assets under custody. “That would lead to an increase in risk appetite.”
The yen weakened 0.7 percent to 91.55 per dollar at 9:06 a.m. in New York, from 90.94 yesterday. Japan’s currency slid 0.4 percent to 117.43 versus the euro from 116.95 yesterday. The euro fell 0.2 percent to $1.2834 from $1.2861 yesterday and $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 0.8 percent.
Risk Aversion Easing
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock price changes that’s 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.”
The yen gained versus every major currency in the past three months as investors sought refuge for their cash even as the Japanese economy faltered. It rose 6.7 percent against the dollar and 5.9 percent versus the euro.
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.
Pepsi Earnings
The stronger dollar is hurting some global companies as they report earnings. PepsiCo Inc., the world’s second-largest soft- drink maker, said today fourth-quarter income fell 43 percent as higher commodity costs and a stronger dollar pared profits from sales overseas. Coca-Cola Co., the world’s largest, said yesterday the stronger dollar reduced operating profit by 9 percent in the fourth quarter.
The euro headed for a weekly decline versus the dollar 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.
Europe’s Contraction
The euro region’s economy may contract 2 percent this year and only return to growth in 2010, European Central Bank Executive Board Member Jose Manuel Gonzalez-Paramo told reporters in Lerida, Spain today. It will be a “U-shaped recovery,” he said.
Investors added to bets the ECB 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 88.66 pence per euro, rising 1.6 percent on the day, from 87.52 pence a week ago. It traded at $1.4517, 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.
