BLBG:Yen, Dollar Advance on Haven Demand as Prospects Fade for U.S. Debt Accord
The yen and the dollar rose against most of their major counterparts on demand for safer assets after a Democratic aide said a U.S. Congressional committee is likely to announce today it failed to agree on deficit cuts.
The Australian dollar declined for a sixth day against the yen as futures showed U.S. stocks will fall, damping demand for higher-yielding currencies. The euro held last week’s biggest loss versus the yen since September after Spain’s opposition won a parliamentary majority in a general election. Malaysia’s ringgit slid as Singapore, the nation’s second-biggest export market, forecast slower economic growth.
“If the agreement isn’t reached, then that does lead to a spike in risk aversion,” said Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank of Australia, the nation’s biggest lender. “That would support the U.S. dollar and also perhaps gives a little bit of support for the yen.”
The yen was at 103.89 per euro as of 11:29 a.m. in Tokyo from 104 in New York on Nov. 18, when it completed a 2 percent advance for the week. Japan’s currency traded at 76.84 against the dollar from 76.91. The euro fetched $1.3522 from $1.3525 at the end of last week, when it rose 0.5 percent. The yen jumped 0.6 percent to 76.48 per Australian dollar.
Standard & Poor’s 500 Index futures lost 0.8 percent, while the MSCI Asia Pacific Index of regional shares fell 1 percent.
U.S. Rating
Today is the deadline for the U.S. Congressional Budget Office to receive a plan that it can analyze before the supercommittee’s Nov. 23 target date for reaching an agreement. It was highly unlikely that the panel’s talks could be salvaged, the Democratic aide, who requested anonymity, said in an e-mail yesterday.
Treasuries and the dollar have gained even after Standard & Poor’s cut U.S.’s AAA credit rating on Aug. 5 for the first time, saying the government has become “less stable, less effective and less predictable.” The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, advanced 7 percent since then to reach a more-than-eight-month high on Oct. 4.
“We already had one downgrade, so I guess the risk is there that you’d get another one,” Commonwealth Bank’s Capurso said of the U.S. credit rating. “Last time the U.S. got a credit rating downgrade that saw the U.S. dollar rise quite significantly. There is a good chance that you’ll get a repeat of just that.”
Spain Election
People’s Party leader Mariano Rajoy won 186 of the 350 seats in Spain’s parliament, compared with 110 seats for the Socialist Party’s candidate Alfredo Perez Rubalcaba. Rajoy, who said on Nov. 18 he hoped Spain wouldn’t need a bailout before his new government takes over in a month’s time, has pledged to cut the budget deficit and regain the nation’s AAA credit rating.
“The fact that there’s a clear election result is certainly positive,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “We saw the euro come up a little bit. For the time being, sentiment is slightly positive.”
The euro has fallen 2.2 percent over the past 12 months, Bloomberg Correlation-Weighted Indexes show, as slumps in government bonds spurred concern the region’s debt crisis is spreading to bigger nations, including Italy and France. The yen has climbed 6.5 percent during the period.
The European Central Bank bought Italian government bonds on Nov. 18, according to five people with knowledge of the trades who declined to be identified. Three said the central bank also purchased Spanish debt.
‘Ugly’ Euro
France is scheduled to sell 7 billion euros ($9.5 billion) of bills today. The nation’s benchmark 10-year yield surged to 3.82 percent last week, the highest since July 2009.
An index of European consumer confidence fell to minus 21 in November, the lowest reading since August 2009, according to a Bloomberg News survey of economists before the European Commission releases the data tomorrow.
“If the ECB doesn’t start buying bonds, I think we’ll see the euro under sustained pressure,” said Derek Mumford, a director in Sydney at Rochford Capital, a foreign-exchange risk- management firm. The euro “does look quite ugly.”
Malaysia’s ringgit sank to the lowest level in more than a month as Singapore’s trade ministry said that the city-state’s economy will grow 1 percent to 3 percent next year after expanding 5 percent in 2011.
“The weaker Singapore economic forecast for 2012 is weighing on sentiment,” said Zulkiflee Nidzam, head of foreign- exchange trading at Asian Finance Bank Bhd. in Kuala Lumpur.
The ringgit touched 3.1778 per dollar, the weakest since Oct. 7, before trading 0.4 percent lower at 3.1738.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
