BLBG:Dollar Advances on Improving U.S. Outlook; Yen Weakens to Nine-Month Low
The dollar strengthened to a nine- month high against the yen before U.S. reports next week forecast to show growth in the world’s biggest economy is gathering pace, while deflation persists in Japan.
The yen dropped against all but two of its 16 major counterparts after government data showed consumer prices declined, fanning speculation the central bank will expand monetary easing. The Dollar Index headed for its biggest weekly gain in almost two months as Morgan Stanley raised its forecast for the greenback. The euro declined for a third day against the dollar as a German report showed retail sales unexpectedly fell.
“The move in dollar-yen seems to be dragging the dollar higher,” said Adam Cole, head of currency strategy at RBC Capital Markets in London. “That’s spilling over to other currencies and keeping the dollar well-bid across the board. The move lower in euro-dollar reflects the general dollar move.”
The dollar appreciated 0.5 percent to 81.53 yen at 10:45 a.m. London time after climbing to 81.71, the strongest since May 31. Japan’s currency dropped 0.1 percent to 108.08 per euro. The 17-nation euro declined 0.5 percent to $1.3250.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six major trading partners, gained 0.4 percent to 79.128. The gauge has gained 0.9 percent this week, the most since the five days ended Jan. 6.
Japan Deflation
The Institute for Supply Management’s non-manufacturing index stayed near an 11-month high at 56.1 in February, according to a Bloomberg News survey before the report on March 5. The index rose to 56.8 in January, the highest since February 2011. Readings above 50 signal expansion. Other U.S. reports next week are forecast to show companies hired more workers and productivity increased.
Japan’s consumer prices excluding fresh food dropped for a fourth month in January, decreasing 0.1 percent from a year earlier, the statistics bureau said. The BOJ set an inflation goal of 1 percent on Feb. 14 and more than doubled an asset- purchase fund that targets notes maturing within two years. Policy makers next meet on March 12-13.
“There are expectations in markets for further easing by the Bank of Japan (8301) at its next meeting, leading to some yen selling,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “The CPI number was still negative, far away from the BOJ’s target.”
Japan’s five-year breakeven rate, a gauge of expectations for consumer prices, rose above zero today for the first time on record going back to June 2009.
Worst Performer
The yen has weakened 6.8 percent in the past three months, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro was the second-biggest loser, dropping 3.2 percent. The dollar has declined 2 percent.
Morgan Stanley increased its dollar forecast for the first quarter to 80 yen from 75 yen. The BOJ has shifted to a “more aggressive dovish” stance, Hans Redeker and Calvin Tse, foreign-exchange strategists at the company, wrote in a note to clients yesterday.
The euro weakened after Germany’s statistics bureau said retail sales adjusted for inflation and seasonal swings fell 1.6 percent in January. Economists forecast a gain of 0.5 percent, a Bloomberg News survey showed.
Retail Sales
Euro-area retail sales dropped for a third month in January, the EU’s statistics office will say on March 5, another Bloomberg survey showed. The European Central Bank (EURR002W) will keep its benchmark interest rate at the record low of 1 percent on March 8, according to a separate survey.
“The European economy is already in a recession, and the only question is how bad the recession gets,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “We do not have a growth plan in Europe. That certainly weighs on the euro.”
European leaders agreed yesterday to provide capital faster for the planned permanent bailout fund in a concession to international pressure to strengthen the bloc’s defenses against the debt crisis.
The Swiss franc fell for a third day versus the dollar, dropping 0.4 percent to 90.99 centimes. The currency declined 1.5 percent this week, the most since the period ended Jan. 6.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
