BS: Yen Rises From Lowest in Almost Two Weeks on Slow-Growth View
By Catarina Saraiva and Anchalee Worrachate
July 7 (Bloomberg) -- The yen advanced against all of its most-traded counterparts as speculation the global recovery will slow and a drop in stocks encouraged demand for relative safety.
Japan’s currency rose from the lowest level in almost two weeks against the euro after reports showed Germany’s factory orders unexpectedly fell in May and Australia’s building industry contracted last month. The euro slipped versus the dollar as the cost of insuring against losses on European corporate debt rose.
“Currencies are taking their cue from the bias in equities,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “Much of it speaks to a backdrop of uncertainty, and that uncertainty plays into a squaring of risk.”
The yen strengthened 0.6 percent to 109.81 per euro at 8:45 a.m. in New York, from 110.51 yesterday, when it touched 110.85, the weakest level since June 25. The yen appreciated 0.3 percent to 87.27 per dollar, from 87.52, after touching 86.97 on July 1, the strongest level since Dec. 2. The euro fell 0.3 percent to $1.2583, from $1.2626 yesterday, when it traded at $1.2662, the highest level since May 21.
Norway’s krone decreased 1.1 percent to 13.57 yen and the Mexican peso slid 0.3 percent to 6.73 yen on reduced demand for higher-yielding assets.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, climbed 0.3 percent to 84.271 after reaching 83.825 yesterday, the lowest since May 10.
Drop in Equities
Futures on the Standard & Poor’s 500 Index expiring in September declined 0.2 percent. The Stoxx Europe 600 Index lost 0.7 percent after yesterday’s 2.6 percent surge.
“Risk aversion is still at work, with a series of economic data pointing to a stalemate in the global recovery and prospects for equity markets remaining shaky,” said Shinichi Hayashi, a dealer in Tokyo at Shinkin Central Bank, the central institution for Japan’s financial cooperatives. “Risk aversion will support the yen.”
The yen typically strengthens in times of financial turmoil because Japan’s trade surplus frees the nation from dependence on overseas capital. The dollar benefits as the world’s principal reserve currency.
Australia’s dollar dropped against the greenback as the nation’s building industry shrank in June at the fastest pace in 10 months. An index of construction fell 6.8 points to 46.4 from May, according to a survey by the Australian Industry Group and Housing Industry Association released in Sydney today. A reading below 50 shows the industry is contracting.
Weaker Aussie
The Aussie slid 0.6 percent to 84.80 U.S. cents after it reached 85.60 cents yesterday, the highest level since June 30. The currency slipped 0.8 percent to 74 yen.
The Nobel Prize-winning economist Paul Krugman said the U.S. economy is facing a “very long siege” to ward off another recession.
“We really are at a stage where we should have a kitchen- sink strategy” of new stimulus, Krugman said yesterday in an interview on Bloomberg Television’s “Street Smart.”
The euro has dropped 12 percent versus the dollar this year on concern that some nations in the currency region may not be able to finance their debt.
‘Sovereign Problems’
“It will take considerable time before the euro can regain full confidence from investors,” said Yuichi Onsen, chief strategist in Tokyo at T&D Asset Management Co., which helps oversee about $18 billion. “Sovereign problems in some euro- zone countries haven’t shown clear sign of a full resolution.”
The cost of insuring against losses on European corporate bonds rose, with the Markit iTraxx Crossover Index of default swaps on 50 mostly high-yield companies climbing 10.3 basis points to 572.2 as of 10:23 a.m. in London, according to Markit Group Ltd. Contracts on Spanish debt pared yesterday’s decline and rose 1.5 basis points to 253.5, CMA DataVision prices show.
The Swiss franc advanced 0.5 percent to 1.3313 per euro, from 1.3373 yesterday. The currency has gained 3.5 percent against its global peers this year, according to Bloomberg Correlation-Weighted Currency Indices.
Swiss National Bank policy makers led by President Philipp Hildebrand said on June 17 that deflation risk has “largely disappeared,” ending the 15-month policy of countering what they called “excessive” gains by the franc.
“As the economic recovery in Switzerland continues and the situation in the euro zone has stabilized, we still consider the risk of deflation to be low,” Commerzbank AG analysts including Frankfurt-based Ulrich Leuchtmann wrote in a research note today. “Nonetheless, central bank interventions cannot be excluded.”
--Editors: Dennis Fitzgerald, Paul Cox
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Anchalee Worrachate in London at +44-20-7073= aworrachate@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
