BS: Yen Drops Against Most Counterparts as Demand for Refuge Fades
Aug. 9 (Bloomberg) -- The yen fell against most of its major counterparts as global stocks advanced before the Federal Reserve meets tomorrow, reducing demand for a refuge.
The dollar advanced from almost a three-month low against the euro on concern the greenback’s recent drop would be hard to sustain. The U.S. currency declined 1.7 percent last week as investors speculated a stalling economy may force the Fed to consider more stimulus. Japan’s central bank meets tomorrow amid speculation it may move to damp the yen’s rise.
“The Bank of Japan meeting this week, intervention, there are a number of data points that argue for a weaker yen this week,” said Jessica Hoversen, a Chicago-based analyst at the futures broker MF Global Holdings Ltd. “You have a mention of quantitative easing tomorrow, there’s event risk this week.”
The yen depreciated 0.2 percent to 85.68 per dollar at 10:48 a.m. in New York, from 85.51 on Aug. 6. It reached 85.02 yen last week, the strongest since Nov. 27, when it touched levels last seen in 1995. The Japanese currency rose 0.1 percent to 113.43 per euro, compared with 113.55 last week. The dollar gained 0.3 percent to $1.3241 per euro, from $1.3280 on Aug. 6, when it declined to $1.3334, the weakest level since May.
The Stoxx Europe 600 Index advanced 1.1 percent, while the Standard & Poor’s 500 Index increased 0.2 percent.
Mexico’s peso added 0.5 percent to 6.772 yen and the Australian currency rose as much as 0.4 percent to 78.83 yen as stock gains encouraged carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s 0.1 percent interest rate makes the yen popular for funding such transactions.
Bank of Japan
Japanese policy makers are unlikely to boost asset purchases as the yen strengthens toward a 15-year high, Royal Bank of Scotland Group Plc said.
“The yen is likely to move below 85 and remain stubbornly firm until Japanese policy makers countenance more quantitative easing and possibly intervention, which appears unlikely in the near term,” Greg Gibbs, a foreign-exchange strategist at RBS, wrote in an investor note today. Central banks intervene in the foreign-exchange market when they buy or sell currencies to influence exchange rates.
Fed Meeting
The greenback rose versus the euro for the first time in three days before the Federal Open Market Committee meets tomorrow. The seven-day relative strength index of the shared currency versus the dollar touched 71.3. Readings above 70 indicate an asset’s value may have risen too fast and be poised for a reversal.
“People are prudently reducing their dollar short positions ahead of the FOMC meeting -- it’s profit-taking,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “People have been selling dollars on the expectation that we would get quantitative easing, which is essentially the creating of dollars, which is positive for riskier assets.” A short position is a bet the price of an asset will fall.
Speculation the Fed will restart its bond-buying program to support the economy has mounted since central bank Chairman Ben S. Bernanke said July 21 the outlook “remains unusually uncertain,” even as policy makers signaled they will probably pass on providing more stimulus at their meeting tomorrow.
‘Negative Sentiment’
“A likely combination of the BOJ’s status quo and a dovish FOMC statement should keep alive negative sentiment for dollar- yen,” Tomoko Fujii, senior director and currency strategist at Bank of America Merrill Lynch in Tokyo, wrote in a note to clients today. “Barring further sharp yen appreciation, the BOJ will probably find it difficult to ease policy before the FOMC’s policy announcement.”
Goldman Sachs Group Inc. cut its outlook for the U.S. and Japan, citing the likelihood of a “significant falloff” from stimulus measures and slowing export growth for Japan. The company reduced its full-year 2011 growth forecast for Japan’s real gross domestic product to 1.4 percent from 1.7 percent and trimmed its 2011 estimate for U.S. growth to 1.9 percent from 2.5 percent.
The euro’s rally from a four-year low in June resulted in losses for followers of bears from Paul Volcker to Dennis Gartman.
Since Volcker, the 82-year-old former Fed chairman, said May 13 the euro may face “disintegration,” it’s up 5.99 percent against the dollar. Traders who held off purchasing the common currency on June 18, when Gartman, 59, editor of the Gartman Letter, called it “doomed,” missed a 7.3 percent return. Buying on May 6, when European Central Bank President Jean-Claude Trichet said the euro was a “good store of value,” earned 5.28 percent.
--Editors: Greg Storey, Richard Bedard
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net
