BLBG: Dollar, Yen Weaken on Global Recovery Signs, Asian Stock Gains
By Yoshiaki Nohara and Anchalee Worrachate
Feb. 26 (Bloomberg) -- The dollar fell for a third day against the euro and the yen weakened as signs the global economy is recovering and gains in Asian stocks boosted demand for higher-yielding assets.
The U.S. currency declined versus 14 of its 16 major counterparts after Japanese retail sales unexpectedly rebounded, industrial production expanded and Australian bank lending rose for a third month. South Korea’s won strengthened for the first time in four days after an increase in manufacturers’ confidence bolstered optimism the economic recovery is gathering pace.
“You’ve got an underlying robust growth momentum around the region and probably improving a little bit in Japan, and that’s the natural magnet for fund flows,” said Adrian Foster, head of financial-markets research for Asia at Rabobank Groep NV in Hong Kong. “The underlying picture of these currencies is positive” against the dollar, he said.
The dollar dropped to $1.3575 per euro as of 7:30 a.m. in London from $1.3548 in New York yesterday. It climbed to $1.3444 on Feb. 19, the highest since May 18. The yen fell to 121.30 per euro from 120.69 yesterday, when it advanced to 119.66, the strongest since Feb. 24, 2009. Japan’s currency weakened to 89.32 per dollar from 89.07.
Brazil’s real was the top performer against the dollar this month among the 16 major currencies, rising 3.9 percent. It was also the best performer versus the yen. The pound had the sharpest decline against the dollar in February, falling 4.4 percent, its biggest drop since December 2008.
Australian Loans
Higher-yielding currencies advanced after the Reserve Bank of Australia said loans provided by banks and other finance companies climbed 0.4 percent in January after rising 0.3 percent the previous month. Japan’s factory output expanded for an 11th-straight month in January, the Trade Ministry said in Tokyo. Retail sales in the world’s second-largest economy jumped 2.6 percent from a year earlier.
“Data out of Australia justifies a rate hike next week,” said Masafumi Yamamoto, chief foreign-exchange strategist in Tokyo at Barclays Plc, Britain’s second-largest bank. “The Australian dollar will gain versus the dollar and the yen.”
Australia’s currency rose 0.2 percent to 89 U.S. cents, and it advanced 0.5 percent to 79.49 yen.
The benchmark interest rate of 3.75 percent in Australia compares with as low as zero in the U.S. and 0.1 percent in Japan, making the South Pacific nation’s assets attractive to investors. The benchmark is 8.75 percent in Brazil. The risk in such trades is that currency market moves will erase profits.
Asian Stocks
Asian currencies strengthened as regional stocks rallied. The MSCI Asia Pacific Index of regional shares rose 0.5 percent and the Nikkei 225 Stock Average gained 0.2 percent. The won advanced 0.3 percent to 1,159.85 per dollar.
An index measuring manufacturers expectations in South Korea climbed to 101 in March from 92 in February, the central bank said. That’s the highest since the fourth quarter of 2002.
“The manufacturing data helps the won,” said Thio Chin Loo, a senior currency strategist at BNP Paribas SA in Singapore. “There is some profit-taking in dollar positions before the weekend.” A long position is a bet an asset will rise.
The yen also fell on speculation Japanese importers are settling accounts overseas on the last trading day of the month while the nation’s investors sought overseas assets for higher returns.
Japanese finance companies are scheduled to raise 1.44 trillion yen ($16.1 billion) today for so-called toshin mutual funds focused on higher-yielding assets, according to data compiled by Bloomberg.
Japan’s Importers
“There’s talk of importers’ month-end interest and toshin- related demand,” said Yuji Saito, director of the foreign- exchange department in Tokyo at Credit Agricole CIB, a unit of the largest French bank by branches.
The euro has dropped 2.1 percent against the dollar this month, heading for a third monthly loss, amid concern sovereign debt problems in countries such as Greece and Spain will hamper the region’s recovery.
A further downgrade of Greece of one to two levels is possible within a month, S&P analysts led by Marko Mrsnik in London said Feb. 24. Pierre Cailleteau, managing director of sovereign risk at Moody’s, said in Tokyo yesterday Greece faces a downgrade of “a couple of notches” within a few months.
Futures traders increased bets to a record that the euro will weaken versus the dollar, data from the Washington-based Commodity Futures Trading Commission showed Feb. 19. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain rose to 59,422 on Feb. 16 from 57,152 a week before.
“The shorts on CFTC have spiked to historical highs so the pressure is intense,” said Aaron Low, a principal at hedge fund Lumen Advisors LLC in Singapore. “If it was only Greece, the fallout would be more limited. But investors are looking at the bigger picture, and that picture does not look that great.
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net
