BS: Pound Weakens After Fitch Warning; Yen Rebounds Versus Dollar
The pound weakened for the first time in three days against the euro after Fitch Ratings said the U.K. risks losing its top investment grade.
The yen climbed from an 11-month low against the dollar as investors wagered Japan’s currency may have weakened too quickly. South Africa’s rand and the New Zealand’s dollar were the best performers against the pound and dollar. The U.K. currency fell against 14 of its 16 major counterparts after Fitch changed its rating outlook yesterday on Britain to negative, citing a weak recovery and high debt levels.
“The Fitch announcement is news to the market because its focus had shifted from the U.K.’s fiscal position,” said Aroop Chatterjee, a currency strategist at Barclays Capital Inc. in New York. “The U.K. has been on an improving trajectory on the fiscal front. But ever since European risks had subsided, the market has turned its focus on other fiscally weak countries out there, the U.K. being one and Japan being another one.”
The pound declined 0.3 percent to 83.42 pence per euro at 10:44 a.m. New York time. Sterling weakened 0.5 percent to 130.57 yen and was little changed at $1.5675. The yen gained 0.5 percent to 83.31 versus the dollar. The euro appreciated 0.4 percent to $1.3078.
Ratings Reasons
Fitch’s said its decision “reflects the very limited fiscal space to absorb further economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery.” The U.K. government is implementing the biggest squeeze on government spending since World War II as it attempts to reduce the nation’s deficit.
The yen rose amid technical indicators the Japanese currency had weakened too quickly. The 14-day relative strength index for the yen versus the dollar was below the 30 level for a fifth day, which indicates an asset may have fallen too far too fast.
Japan’s yen has tumbled 5.8 percent in the past month, the worst performer in Bloomberg Correlation-Weighted Indexes, which tracks 10 developed-nation currencies. The dollar climbed 0.8 percent, and the euro gained 0.8 percent.
The extra yield investors receive from holding Treasury two-year notes instead of similar-maturity Japanese debt widened to 24 basis points, or 0.24 percentage point, the close to the most since July, increasing the attractiveness of dollar assets as manufacturing the in New York region expanded in March at the fastest pace since June 2010, according to the Federal Reserve.
Yen Trades
“Looks like dollar-yen is being taken to the woodshed this morning by people squaring up quite aggressively or trying to force out the dollar longs,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank. “Despite those better U.S. numbers, the dollar is not really benefiting this morning.” A long is a bet an asset will appreciate.
Intercontinental Exchange Inc. reported record daily volume in the Dollar Index (DXY) yesterday, which it uses to track the greenback against six major trading partners. Contracts traded reached 82,689, with a notional value of more than $6.6 billion. That compares with the average daily in February of 29,073 contracts and the previous volume record of 81,814 set in June 2011.
The gauge, which is weighted 57.6 percent to movements in the 17-nation euro fell for the first time in three days, declining 0.4 percent to 80.265.
Rand, Kiwi
The rand strengthened as global stocks and commodity prices rebounded from losses yesterday, buoying higher-yielding currencies. MSCI World Index of stocks rose 0.4 percent. Gold, the nation’s largest export, rose 0.2 percent to $1.649 an ounce in New York.
The rand rose 1.1 percent to 7.6181 per dollar.
The Bank of New Zealand Ltd. and Business New Zealand, a Wellington-based employer group, reported today that the Performance of Manufacturing Index (NZPMISA) rose in February to the highest since April 2010.
New Zealand’s currency, nicknamed the kiwi, added 1 percent to 81.77 U.S. cents.
The Swiss franc climbed from a seven-week low against the dollar as the Swiss National Bank predicted the economy will expand 1 percent this year, twice as much as its previous estimate.
Policy makers led by interim Chairman Thomas Jordan, maintained their ceiling for the currency at 1.20 francs per euro, and pledged to defend the cap with their “utmost determination.” The SNB forecast that consumer prices will fall 0.6 percent this year, before inflation returns in 2013 with a rate of 0.3 percent, accelerating to 0.6 percent in 2014.
“The fact that they have lowered their inflation projections slightly indicates that they are still not believing the Swiss economy is out of the woods with respect to deflation risk,” Leuchtmann said. “They will not increase the floor but they will keep the floor for a long time.”
The franc rose 0.4 percent to 1.20767 per euro, and gained 0.8 percent to 92.31 centimes per dollar.
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
