BLBG: Yen Weakens Versus Dollar On BOJ Stimulus Speculation
The yen fell to its lowest level against the dollar in almost a month on speculation the Bank of Japan may expand monetary stimulus, a decision that would debase the currency.
The euro snapped two days of gains against the dollar as a report showed euro-bloc services and manufacturing output contracted in June, adding to signs Europe’s debt crisis is blunting economic growth. New Zealand’s dollar strengthened after a report showed the nation’s economy grew at the fastest pace in five years last quarter.
“Expectations for further monetary easing by the BOJ are increasing,” Neil Jones, head of hedge-fund sales at Mizuho Corporate Bank in London, said in a telephone interview. “Markets expect the proposed consumption tax hike to pass through parliament by the end of the month. Tighter fiscal policy raises the chances of a looser monetary policy. On both counts, a currency should weaken, and the yen is no exception.”
The yen depreciated 0.7 percent to 80.12 per dollar at 9:13 a.m. in New York. It touched the weakest level since May 22 and fell versus all of its major counterparts for a second day. The U.S. currency added 0.4 percent to $1.2660 per euro. The 17- nation currency rose 0.4 percent to 101.77 yen.
European Data
The euro-bloc manufacturing composite index held at 46, the same reading as in May, London-based Markit Economics said today in an initial estimate. That matches the lowest since June 2009. Economists had forecast a drop to 45.5, the median of 15 estimates in a Bloomberg News survey showed.
“The weak PMI data we’ve seen from Europe is weighing on the euro,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “The growth outlook is coming into question. There is plenty to put the euro back under pressure.”
The ECB earlier this month held its benchmark interest rate at a record low of 1 percent, while President Mario Draghi said “a few” policy makers called for a cut. The central bank’s next rates decision is scheduled for July 5.
European finance ministers are set to meet in Luxembourg today to discuss the currency union’s financial woes.
The euro is down from this year’s high of $1.3487 on Feb. 24 and has depreciated about 6.7 percent in the past 12 months, according to Bloomberg Correlation-Weighted Indexes that measure 10 developed-market currencies.
Spanish Sale
Spain sold 2.2 billion euros of debt maturing between 2014 and 2017, the Bank of Spain said, compared with a maximum target of 2 billion euros set for the auction.
The average yield on notes maturing in 2014 was 4.706 percent, compared with 2.069 percent when they were last sold in March.
Spanish 10-year yields reached 7.29 percent on June 18, the most in the euro era and above the 7 percent level that pushed Greece, Ireland and Portugal to request rescue packages.
“As long as Spain’s debt problem stays with us, my bearish view on the euro won’t change,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency-margin company. “Whether Spain can resolve its debt problem has yet to become clear, so anxieties continue to prevail.”
The dollar strengthened versus most of its major counterparts even after the Federal Reserve said yesterday it stood ready to implement further stimulus following the announcement of an extension to its program to replace short- term bonds with longer-term debt.
Fed Moves
The central bank said it will expand its so-called Operation Twist program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio, by $267 billion through the end of the year. Officials also cut their estimates for 2012 growth after last month’s slowdown in hiring and said there will be little progress on unemployment during the rest of the year.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, added 0.2 percent to 81.702.
“The slowdown in the U.S. economy is more than I have expected, and it’s damping people’s willingness to buy the dollar,” said FX Prime’s Ueda.
New Zealand’s dollar rose after a report showed gross domestic product increased 1.1 percent in the three months ended March 31 from the previous quarter, when it expanded a revised 0.4 percent, Statistics New Zealand said.
The kiwi climbed 0.4 percent to 79.81 U.S. cents, after reaching 80.17 cents, the strongest level since May 4.
To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
