The yen and dollar strengthened as growing evidence that the global economy is slowing boosted investor demand for currencies perceived as being the safest. The euro headed for its biggest monthly decline against the yen in more than a year after data showed German retail sales fell by more than economists forecast and before a report that may show U.S. consumer spending slowed in August. New Zealand’s dollar extended its second week of losses against the dollar after Standard & Poor’s joined Fitch Ratings in cutting the nation’s credit ratings. The Swiss franc weakened after the central bank said it is determined to prevent currency gains. “Risk aversion is benefiting the dollar and also the yen,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “Weak economic data and a euro- zone debt crisis that is not improving makes for a very nasty cocktail. There’s a very serious threat of a global recession.” The Japanese currency gained 0.6 percent to 103.82 per euro as of 8:49 a.m. in London, set for a 6.7 percent advance this month, the biggest increase since May 2010. The dollar strengthened 0.5 percent to $1.3529 per euro, extending its advance this month to 6.8 percent. The greenback fell 0.1 percent to 76.73 yen. The New Zealand dollar sank for a third straight day, dropping 1 percent to 76.32 U.S. cents, taking its loss this past week to 1.7 percent and its monthly decline to 10.5 percent. Switzerland’s franc weakened 0.7 percent to 90.32 centimes per dollar. Slowdown Signs German retail sales, adjusted for inflation and seasonal swings, slumped 2.9 in August from July, when they rose 0.3 percent, the Federal Statistics Office in Wiesbaden said today. That’s the biggest drop since May 2007. Economists forecast a 0.5 percent decline. Sales rose 2.2 percent in the year. Consumer spending in the U.S. gained 0.2 percent in August after a 0.8 percent increase the previous month, according to the median estimate of economists surveyed by Bloomberg before the Commerce Department releases the figures today. Elsewhere, a gauge of Chinese manufacturing shrank for a third month, the longest contraction since 2009. The reading of 49.9 for the September purchasing managers’ index, released by HSBC Holdings Plc and Markit Economics today, was unchanged from August. A number below 50 indicates a contraction. The Swiss National Bank will defend the cap on the franc with all its determination, central bank President Philipp Hildebrand said at an event in Geneva yesterday. ‘All Measures’ “We will defend the ceiling with all measures,” Hildebrand said. He declined to comment on the extent of the central bank’s currency purchases to maintain the cap, calling the measure “credible.” The SNB on Sept. 6 imposed a franc ceiling of 1.20 versus the euro and resumed purchases of foreign currencies to protect exports as the euro-zone debt crisis drove investors toward the relative safety of the franc. Signs that the euro area’s debt crisis is hurting the region’s economy have prompted speculation that the European Central Bank will lower borrowing costs next week. Eight of 32 economists surveyed by Bloomberg News said the central bank will cut its benchmark interest rate by at least a quarter-percentage point from the current rate of 1.5 percent at its Oct. 6 policy meeting. The others expect no change. ECB Rates Swaps traders are betting the central bank will lower the rate by 40 basis points over the next 12 months, according to a Credit Suisse Group AG index. That compares with a 25 basis- point increase projected at the beginning of August. “The sovereign debt issues in the region and the fact the market has turned to be pricing in rate cuts by the ECB can explain the recent downward trend in the euro,” Kikuko Takeda, a London-based senior currency economist at Bank of Tokyo Mitsubishi UFJ, a unit of Japan’s biggest publicly traded lender, said yesterday. New Zealand lost its AAA grades on local-currency debt at Fitch Ratings and Standard & Poor’s, which both cited concerns about the nation’s fiscal burden. The outlook is stable after the long-term local-currency rating was reduced to AA+ and the foreign-currency rating was cut to AA from AA+, S&P said in a statement, matching actions announced yesterday by Fitch. The yen also gained versus all of its major peers amid speculation Japanese exporters are repatriating overseas earnings before the first half of the fiscal year ends today. Yen Repatriation “Some buying of the yen is expected from Japanese exporters,” said Osao Iizuka, head of currency trading in Tokyo at Sumitomo Trust & Banking Co., a unit of Japan’s third-largest banking group. “There’s also a rumor in the market that Japanese authorities may intervene at the end of quarter so that the exporters can sell foreign currencies on a rally.” Japanese Finance Minister Jun Azumi said he’s asked for the issuance limit of bills to finance foreign-exchange intervention to be raised by 15 trillion yen. He also told reporters in Tokyo today that the ministry’s monitoring of financial institutions’ foreign-exchange market positions will be extended to the end of December. The yen has gained 13 percent in the past three months, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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