BLBG: Yen Approaches 2010 High Versus Dollar on U.S. Slowdown
The yen rose toward the strongest level this year against the dollar as signs the U.S. economy is losing momentum added to speculation the Federal Reserve will keep interest rates near zero.
Japan’s currency gained versus all 16 of its major counterparts as Asian stocks dropped before U.S. reports that economists said will show household sentiment deteriorated and consumer prices fell. New Zealand’s dollar declined for the first time in two weeks versus the greenback after a government report showed inflation was slower than economists forecast, easing pressure on the central bank to raise borrowing costs.
“The market is becoming increasingly worried about downside risks to the U.S. economy,” said Toshiya Yamauchi, a senior foreign-exchange analyst in Tokyo at Ueda Harlow Ltd. “As risk sentiment weakens, the yen is likely to be sought.”
The yen strengthened to 87.23 per dollar as of 7:36 a.m. in London from 87.40 in New York yesterday, after appreciating to 86.98, approaching this year’s high of 86.97 set July 1. The yen gained to 112.60 per euro from 113.17. The dollar rose to $1.2912 per euro from $1.2950 yesterday when it reached the weakest level since May 10.
The dollar lost 2.1 percent against the euro this week, and 1.6 percent versus the yen.
U.S. consumer sentiment fell to 74 this month from 76 in June, according to a Bloomberg survey of economists before the release of the Thomson Reuters/University of Michigan preliminary index today. Consumer prices dropped 0.1 percent in June, a third monthly decline, according to a separate survey ahead of today’s Labor Department report.
‘Poor’ Data
The MSCI Asia Pacific Index of shares fell 1 percent, a second day of losses.
Traders cut bets to 14 percent that the Fed will increase its benchmark rate by its December meeting, down from 27 percent odds a month earlier, according to futures on the Chicago Mercantile Exchange.
“The poor economic data has helped weaken expectations for any increases in U.S. interest rates,” said Yuichiro Harada, senior vice president of the foreign-exchange division in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest lender. “The market is gradually leaning toward a ‘sell the dollar’ mode.”
The yen strengthened versus the dollar as the extra yield offered by Treasuries over Japanese debt shrank. Two-year Treasuries offer 0.45 percentage point more than similar- maturity Japanese notes, near this year’s low of 0.44 percentage point set on June 29.
“A narrowing in yield spreads between Japan and the U.S. notes also creates the basis for yen appreciation,” said Masaaki Kanno, chief economist in Tokyo at JPMorgan Securities Japan Co. and a former official at the Bank of Japan.
New Zealand Dollar
New Zealand’s dollar weakened for a second day against the yen after the government said consumer prices rose 0.3 percent last quarter from the previous three months, less than the 0.4 percent gain forecast by economists.
The report “buys the Reserve Bank a bit more time and that’s why we’re seeing this reaction in the kiwi,” said Khoon Goh, a senior markets economist at ANZ National Bank Ltd. in Wellington. “The market should start to focus on the fact that some of the domestic momentum in the New Zealand economy seems to be easing.”
Central bank Governor Alan Bollard raised the official cash rate to 2.75 percent on June 10, the first increase in three years. Traders are betting policy makers will boost the benchmark by 1.24 percentage points over the next 12 months, after wagering on a 1.30 percentage point advance at the start of the week, according to a Credit Suisse Group AG index.
New Zealand’s dollar dropped 1.4 percent to 71.95 U.S. cents, and lost 1.7 percent to 62.64 yen.
Fed Policy
The U.S. dollar rose for the first time in four days against the euro on speculation the Fed will refrain from taking more emergency stimulus measures to sustain the recovery.
The U.S. central bank is “far away” from implementing additional credit easing steps and recent economic reports are consistent with “moderate” growth, Richmond Fed President Jeffrey Lacker said yesterday. Policy makers saw no need for more measures to boost the economy even though the outlook “softened somewhat,” according to minutes of their June meeting released this week.
“The Fed official’s remarks dented expectations for further quantitative easing,” said Takashi Kudo, general manager of market information at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. in Tokyo. “This is triggering some buying back of the dollar.”
The euro declined versus the dollar on speculation its 1.6 percent surge yesterday was excessive.
The single currency’s 14-day stochastic oscillator against the dollar stood at 94, above the 80 threshold that indicates it may have risen too fast and is poised to weaken.
“There’s sentiment that the euro’s jump was overdone,” said Yoh Nihei, Tokyo-based trading group manager at Tokai Tokyo Securities Co. “Some players seem to be unwinding long positions.” A long position is a bet an asset will gain.
