BLBG: Yen Falls as Signs of Economic Recovery and Stock Gains Ease Risk Aversion
The yen fell against most of its 16 major counterparts as China refrained from raising interest rates, lifting stock markets at the expense of safer assets.
The yen declined for a second day against the euro as the MSCI World Index climbed 0.3 percent and copper prices rallied. The U.S. currency rose as Treasury yields advanced before a report tomorrow that may show U.S. retail sales climbed for a fifth month.
“There are signs that the global economic recovery might not be as bad as some have feared, and the level of confidence has improved,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. “The yen is likely to underperform in this risk-on environment.”
The yen declined as much as 0.5 percent against the dollar earlier to 84.35 before trimming losses, and was little changed at 83.94 as of 7 a.m. in New York. It fell 0.3 percent against the euro to 111.35 yen. The currency has gained 11 percent this year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes.
Consumer prices in China rose a more-than-forecast 5.1 percent in November from a year earlier, statistics showed over the weekend. Confidence among U.S. consumers increased in December to a six-month high, the Thomson Reuters/University of Michigan preliminary index of consumer sentiment showed Dec. 10.
Chinese Economy
Even as inflation accelerated to the fastest pace in more than two years, the Chinese central bank held off over the weekend on the rate move predicted by firms including UBS AG and Mizuho Securities Asia Ltd. Policy makers have instead drained money from the financial system over the past two months by setting higher reserve requirements for banks.
U.S. retail sales likely increased 0.6 percent in November after advancing 1.2 percent in October, according to the median estimate of economists in a Bloomberg News survey before the Commerce Department’s figures tomorrow.
The dollar rallied last week after President Barack Obama said he would accept lower tax rates on high earners’ income, dividends, capital gains and estates for the next two years in exchange for extending federal unemployment insurance and a one- year cut in payroll taxes.
“If we get the tax deal going through, that’s something that will reinforce the case for higher yields and the attractiveness of the dollar,” said Robert Rennie, currency- research head in Sydney at Westpac Banking Corp.
Higher Yields
Yields on 10-year Treasuries climbed to as much as 3.39 percent today, the highest since June. They rose 31 basis points last week, or 0.31 percentage point, the most since August 2009. The Federal Reserve is set to hold a policy meeting tomorrow as it continues to buy Treasuries to bolster the economy.
Pacific Investment Management Co., which manages the world’s biggest bond fund, raised its forecast for U.S. growth in 2011 as policy makers pump a “massive amount” of stimulus into the economy, Chief Executive Officer Mohamed El-Erian said on Dec. 9.
U.S. gross domestic product will expand by 2.55 percent in 2011, up from the 2.5 percent growth predicted last month, according to a Bloomberg survey of economists.
The euro weakened against the dollar amid signs of division among European governments over how to stem the region’s debt crisis. The shared currency fell for a third day before European Union leaders attend a summit on Dec. 16 and 17, with Italy Belgium and Luxembourg favouring euro-area bonds, while Germany and France oppose the idea.
EU Summit
The euro’s survival is “non-negotiable,” requiring budget vigilance and closer economic cooperation to overcome “structural weaknesses” within the euro region, German Chancellor Angela Merkel and French President Nicolas Sarkozy said Dec. 10. They ruled out joint bonds and rejected any increase in the size of a rescue fund set up in May.
“The political worry ahead of the crucial meeting this week will work against the euro,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “There is a clear split between smaller nations in the region and Germany and France, and that raises a number of questions about the future of the euro.”
Futures traders increased bets that the euro will weaken against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed on Dec. 10.
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 -- so-called net shorts -- more than doubled to 15,290 on Dec. 7 from a week earlier.
To contact the reporter on this story Anchalee Worrachate in London at aworrachate@bloomberg.net
To contact the editor responsible for this story: Keith Campbell at k.campbell@bloomberg.net
