Yen Weakens on Prospects for Stimulus by Central Banks
Wednesday, 04 July 2012 | 00:58
The yen fell against all of its 16 most-traded peers except Brazil’s real as investors sought higher-yielding assets
amid speculation central banks will step up efforts to spur growth, reducing demand for havens.
The Dollar Index fluctuated before jobs data this week that lenders such as Bank of Tokyo-Mitsubishi UFJ Ltd. said may add to the case for more stimulus by the Federal Reserve. The European Central Bank will cut interest rates amid efforts to curb the region’s debt crisis, a Bloomberg News survey forecast. South Africa’s rand climbed as risk appetite grew, while Brazil’s real slid as the nation’s industrial output fell.
“We’re still in a tug of war between the debt crisis in Europe and the slowing economy in the U.S.,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a telephone interview. “There’s an argument to be made for an ECB rate cut or liquidity operation, triggering a brief risk rally.”
Japan’s currency weakened 0.6 percent to 100.61 per euro at 5 p.m. New York time. The yen depreciated 0.4 percent to 79.79 per dollar. The greenback fell 0.3 percent against the 17-nation currency to $1.2608.
The yen rose 0.4 percent yesterday versus the dollar, the most in a week on a closing basis, after an Institute for Supply Management Inc. gauge showed U.S. manufacturing unexpectedly shrank for the first time in almost three years. The Japanese currency tends to strengthen in periods of financial turmoil because the nation’s current-account surplus makes it less reliant on foreign capital.
The euro advanced versus the dollar after Commerce Department data showed orders placed with U.S. factories rose 0.7 percent in May, the first increase in three months. The median forecast of economists in a Bloomberg News survey called for a 0.1 percent advance. Stocks rose, with the Standard & Poor’s 500 Index gaining 0.6 percent.
The ECB will lower its main refinancing rate by a quarter- percentage point to 0.75 percent on July 5, economists in a Bloomberg survey forecast. The Bank of England also will announce a policy decision that day.
“They’re expecting the ECB to cut rates, and they’re expecting the Bank of England to announce more quantitative easing,” or large-scale asset purchases, Adrian Schmidt, a foreign-exchange strategist at Lloyds Banking Group Plc in London, said in a phone interview.
Weak employment figures in the U.S. may prompt the Fed to initiate fresh stimulus, BNP Paribas SA said. Labor Department nonfarm payrolls data are due July 6.
“We’re looking for further dollar weakness, and a lot of it has to do with the market starting to price in quantitative easing,” Mary Nicola, a currency strategist at BNP Paribas in New York, said in a telephone interview. “It’s all going to be data-dependent. Nonfarm payroll on Friday is going to be key.”
South Africa’s rand reached its strongest level since May 11 versus the greenback as speculation central banks will ease monetary policy boosted demand for commodities that account for almost half of the nation’s exports. The currency gained 1 percent to 8.0752 per dollar and touched 8.0619.
The Canadian dollar advanced against 14 of its major counterparts amid a rise in crude oil, the nation’s largest export. The currency gained to the strongest level against the U.S. dollar since May 17, climbing as much as 0.5 percent to C$1.0121.
Crude for August delivery reached $88.04 a barrel in New York, the highest level since May 31.
Brazil’s real tumbled amid speculation the country’s central bank will deepen interest-rate cuts after a report showed industrial production fell more than forecast. The currency slid 1.5 percent to 2.0155 per dollar. It rallied yesterday as much as 1.2 percent after the central bank supported it with currency-swap auctions three times last week.
U.S. payrolls added 90,000 workers last month after gaining 69,000 in May, a Bloomberg survey forecast before the Labor Department data this week. May’s increase was less than half the 150,000-job gain that economists had forecast, and the unemployment rate rose to 8.2 percent, from 8.1 percent.
The Fed bought $2.3 trillion of bonds from December 2008 to June 2011 in its first two rounds of quantitative easing, seeking to reduce the unemployment rate, which has stayed above 8 percent since February 2009. It will increase asset purchases in September, according to Bank of America Corp., one of the 21 primary dealers that trade directly with the Fed.
“With a 90,000 increase in nonfarm payrolls, the unemployment rate will rise,” said Noriaki Murao, managing director in New York at Bank of Tokyo-Mitsubishi UFJ. “The U.S labor market is flashing a red light, with the prospects of QE3 rising.”
The euro gained the most against the dollar in eight months on June 29, climbing 1.8 percent to $1.2667, after leaders in the currency bloc reached an agreement that alleviated concern banks will fail and spurred optimism progress was being made on a resolution of the debt crisis.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was little changed at 81.786 after rising as much as 0.2 percent and falling 0.2 percent.
The greenback fell 2.4 percent over the past month against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes. The yen was the worst performer, with a 4.4 percent decline, and the euro declined 1.4 percent. The Aussie gained 3.8 percent.
Australia’s dollar gained today, touching a two-month high. It rose 0.3 percent to $1.0283 and reached $1.0297, the highest level since May 3.
Morgan Stanley cut its forecasts for the Australian, Canadian and New Zealand dollars, citing what it called an increasingly challenging global economic environment for the commodity-exporting countries.
The Aussie will depreciate to 95 U.S. cents by year-end, compared with the previous projection of 99 cents, New York- based Morgan Stanley said in a note today. New Zealand’s dollar will finish the year at 75 U.S. cents, compared with the earlier forecast of 80 cents. The Canadian dollar will weaken to C$1.06 against its U.S. counterpart, versus the previous forecast of C$1.03, the firm said.
The pound fell against the euro before policy makers meet in two days. The Bank of England’s Monetary Policy Committee will raise its target for bond purchases by 50 billion pounds ($79 billion) to 375 billion pounds on July 5, a Bloomberg survey forecast.
Sterling weakened 0.3 percent to 80.36 pence per euro and was little changed at $1.5689.