BLBG:Yen Falls to 7-Month Low Versus Dollar on U.S. Growth Outlook; Krone Rises
The yen weakened to a seven-month low versus the dollar amid speculation U.S. growth is gathering strength, damping demand for the Asian nation’s currency.
The euro reached a three-month high versus the yen as the Greek government sent debt-swap and austerity measures to parliament for approval after winning a second aid package yesterday. The Dollar Index snapped a two-day drop before a report economists said will show sales of existing U.S. homes increased for a fourth month. The yield difference between Treasury two-year notes and similar-maturity Japanese government bonds reached a six-month high yesterday.
“With the U.S. economy rehabilitating, the trend in yields is up and there may be more upside to dollar-yen,” said Lauren Rosborough, a senior foreign-exchange strategist at Societe Generale SA in London. “At the margin, when domestic investors in Japan can see an improving yield offshore, then they would be looking to sell out of yen and buy the dollar.”
The yen dropped 0.5 percent against the dollar to 80.18 at 11:20 a.m. London time, after trading at 80.30 yen, the weakest level since July 12. The yen is poised for its longest series of daily declines versus the greenback since April. The euro advanced 0.6 percent to 106.10 yen, after reaching 106.33 yen, the highest since Nov. 14. The 17-nation currency was little changed at $1.3234.
Yield Spreads
The yield spread between two-year Treasury notes and their Japanese equivalents reached 19.05 basis points yesterday, the most since Aug. 1, according to closing-market data compiled by Bloomberg. The gap was 18.6 basis points today.
The Bank of Japan on Feb. 14 unexpectedly expanded its asset-purchase program to 30 trillion yen from 20 trillion, with 19 trillion yen set aside for government bonds. The central bank also said it will target 1 percent inflation “for the time being.” The nation’s consumer prices fell at a 0.2 percent annual rate in December, government data show.
BOJ Governor Masaaki Shirakawa today told Japanese lawmakers that policy makers set a price target in order to show the central bank’s resolve and that they will continue to take steps to end deflation.
“The degree of expansion by the BOJ was not momentous in a relative sense, either compared to previous expansions or when compared to the other central banks, but the signal, coupled with a trade deficit, provoked additional impetus to sell the yen,” Rosborough said.
Six-Month Slide
The Federal Reserve said on Jan. 25 it would keep its interest rate target near zero through at least late 2014. It’s replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and spur the economy under a program it plans to conclude in June.
Nomura Holdings Inc., Japan’s biggest brokerage, raised its first quarter forecast for the dollar to 79 yen, according to a research note published yesterday. Its previous projection was for the currency to be at 75 yen.
The yen has depreciated 6.5 percent in the past three months, the biggest decline among 10 developed nation peers tracked by Bloomberg Correlation Weighted Indexes. The dollar weakened 2.2 percent and the euro dropped 4.4 percent over the same period.
The implied volatility of three-month options for Group of Seven currencies fell as low as 9.94 percent yesterday, the least since Feb. 14, and was at 10 percent today, according to the JPMorgan G7 Volatility Index. A decrease makes investments in currencies with higher benchmark rates more attractive because it shows the risk is less that market moves will erase profits on such trades.
Stronger U.S. Economy
Sales (ETSLTOTL) of previously owned homes in the U.S. probably rose 1.1 percent in January to a 4.66 million annual rate, the highest level since May 2010, according to the median estimate of economists surveyed by Bloomberg News before the National Association of Realtors releases its data today.
“The stronger the U.S. economy, the stronger the sense that the interest-rate story will turn around and some of the strength in the yen relative to the U.S. dollar starts to reverse course,” said Gavin Stacey, a strategist at Barclays Capital in Sydney.
The Dollar Index (DXY), which tracks the greenback against six major trading partners, climbed 0.1 percent to 79.212.
The euro rose a fifth day against the yen after the region’s finance ministers awarded 130 billion euros in aid to Greece and reached an accord for greater debt relief from investor representatives yesterday.
Greek Swap
Greece’s government agreed to deeper austerity efforts, a voluntary debt swap known as private-sector involvement, and collective action clauses for bonds. Legislation needed to carry out those measures was submitted to lawmakers and posted on the Greek parliament’s website.
“We should have a bit of positive sentiment for the euro over the rest of this week,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney.
Norway’s krone climbed after a report showed unemployment fell to 3.3 percent in the December quarter, compared with a 3.4 percent median-estimate in a Bloomberg survey.
The krone rose 0.5 percent to 5.6702 per U.S. dollar. The currency of Norway, the world’s seventh-largest oil exporter, is the best performer against its 16 major peers this month after crude prices climbed. Oil for April delivery slipped to $105.84 in electronic trading on the New York Mercantile Exchange today after front-month prices advanced 2.5 percent yesterday to the highest close since May 4.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Keith Jenkins in London at Kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
