BLBG:Yen, Dollar Gain as U.S. House Delay Raises Cliff Concern
The yen and the dollar gained amid demand for refuge assets after U.S. lawmakers delayed a budget vote, spurring concern the so-called fiscal cliff will drive the world’s biggest economy into recession.
The euro pared a weekly gain versus the greenback after House Republican leaders canceled a scheduled vote on Speaker John Boehner’s plan to allow higher tax rates for annual incomes above $1 million. The Australian and New Zealand dollars dropped as Asian shares and U.S. stock futures declined.
“The delay in the U.S. budget talks may boost risk-off trades” supporting currencies such as the dollar and yen, said Yunosuke Ikeda, head of Japan foreign-exchange research at Nomura Securities Co., the nation’s biggest brokerage.
The yen strengthened against all its major counterparts, rising 0.5 percent to 83.96 per dollar as of 1:42 p.m. in Tokyo. The dollar added 0.4 percent to $1.3196 per euro, paring its weekly loss to 0.3 percent. The 17-nation euro lost 0.9 percent to 110.78 yen.
The 14-day relative strength index for the dollar against the euro was at 35 today, rising above 30 for the first since since Dec. 17, the level at which some investors view as an indication an asset may have fallen too far too quickly and is set to reverse direction.
Political leaders in Washington are debating how to avoid the fiscal cliff: more than $600 billion in automatic tax increases and spending cuts that will take effect in January unless Congress acts.
Lacked Support
Boehner, an Ohio Republican, said in a statement his tax measure “did not have sufficient support from our members to pass.” A House leadership announcement said the chamber will hold no more votes until after the Christmas holiday and will return “when needed.”
The speaker said he will call President Barack Obama, according to Representative Steven LaTourette of Ohio. The failure of what Boehner called Plan B made it less clear what budget legislation Congress could pass. The White House had said it would veto the tax bill and Senate Majority Leader Harry Reid had said it was dead on arrival in the Senate.
Australia’s dollar slid 0.3 percent to $1.0453, after touching $1.0438, the least since Dec. 4, while New Zealand’s dropped 0.4 percent to 83.05 U.S. cents.
The MSCI Asia Pacific Index (MXAP) lost 0.7 percent and futures on the Standard & Poor’s 500 Index plunged 1.5 percent.
Aussie, Kiwi
“The fiscal-cliff negotiations are clearly a key focus for markets,” said Kymberly Martin, a markets strategist at Bank of New Zealand Ltd. in Wellington. As the uncertainty drags on “it has the potential to impact on risk appetite and, generally the Aussie and the Kiwi perform worse in a more risk-averse environment.”
The yen is still headed for a weekly decline against most of its 16 major peers.
The Bank of Japan (8301) yesterday increased its asset-purchase fund to 76 trillion yen ($906 billion) from 66 trillion yen and kept its inflation target at 1 percent, while saying it will discuss “medium- to long-term price stability” at its next meeting in January.
Incoming Japanese prime minister Shinzo Abe has called for a doubling of the central bank’s inflation goal to 2 percent and unlimited easing to revive growth.
Japan’s currency has tumbled 12 percent this year, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has weakened 3.2 percent and the euro has dropped 1.3 percent.
“Yen selling has been picking up in a short period of time,” said Yoshitsugu Fujita, assistant vice president of global markets at Sumitomo Mitsui Trust Bank Ltd. in New York. “In the medium term, Abe’s ability to deliver his pledge on monetary and fiscal stimulus will remain a focus for markets.”
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
