BLBG: Yen, Dollar Gain as Global Decline in Stocks Spurs Haven Demand
The yen and dollar advanced against most of their major counterparts as a drop in stocks encouraged demand for havens from the global recession.
Japan’s currency strengthened versus the euro for the first time in three days on falling company earnings. The euro was headed for the biggest weekly decline against the dollar in a month as European Central Bank President Jean-Claude Trichet said the financial crisis poses a serious challenge.
“Some people are buying yen as a hedge against falling stocks,” said Neil Jones, head of hedge fund sales in London at Mizuho Corporate Bank.
The yen appreciated 0.6 percent to 118.63 per euro at 8:06 a.m. in New York, from 119.37 yesterday. The dollar advanced 0.5 percent to $1.2607 per euro from $1.2674. The yen traded at 94.13 per dollar, compared with 94.20. Japan’s currency weakened beyond 94 yen yesterday for the first time since Jan. 7.
The dollar was headed for a 2 percent gain versus the euro this week. The yen was poised for a weekly decline of 2.4 percent versus the dollar, the biggest drop since October. Japan’s currency was down 0.3 percent versus the euro this week.
The yen is attractive in times of financial turmoil because Japan’s current-account surplus reduces the country’s reliance on overseas lenders. The currency also typically gains before the end of the financial year March 31 as some institutions sell foreign assets in favor of yen-denominated holdings to bolster balance sheets as they prepare to report to investors.
Stocks, Earnings
Stocks dropped today, with the MSCI World Index falling for a ninth day. Standard & Poor’s 500 Index equity futures expiring in March slid 1.6 percent.
Anglo American Plc, which controls the world’s largest platinum producer, lost as much as 14 percent in London after saying it will resume dividend payments “as soon as market conditions allow.” Saab Automobile filed for protection from creditors after parent General Motors Corp. said it will cut ties following two decades of losses.
The global credit crisis poses a “serious challenge” to the financial system and economic policy makers around the world, Trichet said today in a speech in Paris. The ECB will provide financial institutions with unlimited cash for as long as needed to help them through the crisis, he said.
“We have gone short euro-dollar as a trade recommendation because prospects of rising growth risks up ahead point to the need for the ECB to apply more aggressive policy steps and investor-growth expectations remain at risk of being too optimistic,” Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a note yesterday.
European Industries
Europe’s manufacturing and service industries unexpectedly contracted at a record pace in February, an index based on a survey of purchasing managers by Markit Economics showed. A composite index of both industries fell to 36.2, a record low. Economists forecast an increase to 38.5, according to the median of 13 estimates in a Bloomberg survey.
The euro headed for a weekly loss against the dollar after ECB council member Erkki Liikanen said policy makers haven’t used all the tools at their disposal to revive the region’s flagging economy.
“I’m convinced that we have not exhausted our creativity and our capacity to take initiatives,” Liikanen, who also heads the Bank of Finland, said in an interview with Finnish newspapers Turun Sanomat and Kaleva published today.
Rate Differentials
The ECB cut its benchmark interest rate by 2.25 percentage points to 2 percent since October. The bank may lower it again at its next meeting on March 5, Trichet and Liikanen said. Policy makers will reduce the rate to 1.5 percent, according to a Bloomberg News survey of economists.
The ECB’s main refinancing rate compares with 1 percent in the U.K., zero to 0.25 percent in the U.S. and 0.1 percent in Japan.
“The outlook for a narrowing interest-rate differential is negative for the euro,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management Ltd., a unit of France’s third-largest bank. “The euro may fall to below $1.25 in the near future.”
Germany’s Chancellor Angela Merkel said yesterday the region is “strong.” She declined to comment on whether Europe’s largest economy would step in to bail out any of the 16 euro members, saying she won’t speculate on the relative health of other countries.
