BLBG: Yen Drops Against Euro as Stock-Market Gains Spur Risk Appetite
Sept. 7 (Bloomberg) -- The yen fell to the lowest level in almost a week against the euro as stocks rose around the world after the Group of 20 nations agreed to shore up the global economy, reducing demand for the Japanese currency as a refuge.
The yen dropped the most against the Canadian and New Zealand dollars as a report showed German factory orders expanded in July by more than economists forecast. Australia’s dollar rose to the highest level in a year against the U.S. currency as the MSCI World Index advanced for a third day. The pound earlier rose for a fourth day against the dollar after Kraft Foods Inc., the world’s second-largest foodmaker, said it offered to buy U.K. candy maker Cadbury Plc.
“There is a clear message that risk appetite is on the rise and consequently, higher-yielding currencies are outperforming,” said Michael Klawitter, a foreign-exchange strategist in Frankfurt at Commerzbank AG, Germany’s second- biggest lender. “It makes sense to bet against the yen.”
The yen depreciated to 133.29 per euro as of 3:05 p.m. in London, from 132.98 in on Sept. 4, after earlier trading at 133.88, the weakest level since Sept. 1. Japan’s currency was little changed at 93.02 per dollar. The dollar weakened to $1.4331 per euro, from $1.4297.
G-20 officials including U.K. Chancellor of the Exchequer Alistair Darling and German Finance Minister Peer Steinbrueck said in London last week that it was premature to quit emergency measures to fight the global recession, signaling central banks will hold down interest rates that are already at record lows.
Confidence ‘Building Up’
“Confidence seems to be building up, and euro-dollar is up a bit,” said Paul Bednarczyk, a currency strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers. “There’s a little bit more risk appetite around.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the dollar against the currencies of six major U.S. trading partners including the euro, yen, pound and franc, dropped 0.3 percent to 77.941.
The yen weakened versus 13 of its 16 major counterparts as the Nikkei 225 Stock Average climbed 1.3 percent. Europe’s Dow Jones Stoxx 600 Index advanced by 1.5 percent, set for a third consecutive day of gains.
The euro snapped three days of losses versus the pound as the Limburg, Germany-based Sentix research institute said an index measuring sentiment in the region rose to minus 14.6 this month from minus 17 in August. Germany’s Economy Ministry in Berlin said factory orders in Europe’s largest economy gained 3.5 percent in July after rising 3.8 percent in June. The median forecast of 41 economists surveyed by Bloomberg was for an increase of 2 percent.
Pound Above $1.64
The pound climbed above $1.64 for a third day, before trading little changed at $1.6377, after Kraft said it will pursue a takeover of Cadbury irrespective of the British chocolate and gum maker’s rejection of a 10.2 billion-pound ($16.7 billion) bid. Britain’s FTSE 100 Index climbed 1.6 percent.
Investors should sell the pound on rallies against the Swiss franc and the euro on speculation the Bank of England will this week expand its asset-purchase program, according to UBS AG, which Euromoney Institutional Investor Plc ranks as the world’s second-largest currency trader.
Governor Mervyn King’s concerns that the U.K. may fall into a so-called liquidity trap may prompt policy makers to increase bond purchases by 25 billion pounds, Mansoor Mohi- uddin, chief currency strategist in Zurich at UBS, wrote in a research note today.
‘Worst Is Over’
U.S. companies cut payrolls by 216,000 workers in August, fewer than economists had forecast and following a 276,000 reduction in July, Labor Department data showed on Sept. 4. The jobless rate rose to 9.7 percent from 9.4 percent.
“There’s a sense the worst of the worldwide recession is over, with the equity market rebounding,” said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Corp. in Tokyo.
Australia’s dollar climbed to 85.62 U.S. cents, from 85.07, after earlier rising to 85.77 U.S. cents, the strongest level since September 2008, as increased optimism the world recession is coming to an end stoked demand for higher-yielding assets. Japan’s benchmark interest rate is 0.1 percent, while the U.S. key rate is between zero and 0.25 percent. Australia’s is 3 percent.
Losses in the yen may be limited today due to trading patterns during the Labor Day holiday, said Tohru Sasaki, chief currency strategist in Tokyo at JPMorgan Chase & Co., citing charts prepared by the bank.
“While we are tempted to say that the market is likely to be range-bound because today is a U.S. holiday, the yen actually has a strong tendency to appreciate on the U.S. Labor Day holiday,” Sasaki wrote in an e-mail to Bloomberg News today.
The yen has appreciated eight out of nine times since 2000 on Labor Day, Sasaki said.
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
