SF: Yen Falls as China's Rate Stance, Stock Gains Ease Risk Aversion
Dec. 13 (Bloomberg) -- 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 and dollar as the MSCI World Index climbed 0.5 percent and commodities rallied. The South Korean won fell amid speculation that importers were selling the currency and the pound weakened against all its major counterparts after a report showed house prices in England and Wales fell for a second straight month.
"There is some relief they didn't tighten as the expectation was with inflation that high and the economy doing so well that we would've seen a tightening over the weekend," said Camilla Sutton, a Bank of Nova Scotia currency strategist in Toronto.
The yen declined as much as 0.5 percent against the dollar earlier to 84.35 before trimming losses, and traded at 83.98 at 8:40 a.m. in New York. It fell 0.4 percent against the euro to 111.53 yen. The Japanese currency has gained 10.5 percent this year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The euro rose 0.4 percent to $1.3283.
China Inflation
Consumer prices in China rose a more-than-forecast 5.1 percent in November from a year earlier, statistics showed during 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.
Even as inflation accelerated to the fastest pace in more than two years, the Chinese central bank did not make the rate move predicted by firms including UBS AG and Mizuho Securities Asia Ltd. Chinese policy makers have instead drained money from the financial system during the past two months by setting higher reserve requirements for banks.
China's yuan weakened 0.1 percent to 6.6628.
The yuan has strengthened 2.4 percent since a two-year dollar peg was scrapped on June 19. The government will push forward the reform on the yuan's exchange rate next year, according to a statement on the State Council's website yesterday following the Central Economic Work Conference.
Euro Pattern
The euro, which declined 1.4 percent against the dollar last week, rose against most its major counterparts even amid signs of division among European governments about how to stem the region's debt crisis. European Union leaders attend a summit on Dec. 16 and 17, with Italy, Belgium and Luxembourg favoring euro-area bonds, while Germany and France oppose the idea.
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.
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.
Import Trade
South Korea's won weakened 0.2 percent to 1,145.83 on speculation that importers were selling the currency.
"Importers are the ones most likely moving the markets," said Richard Smith, a currency trader at Stamford, Connecticut- based Faros Trading LLC. "At this time of year with such thin liquidity, any flows will likely be impacting the market more than usual."
The pound declined 0.5 percent to $1.5724 after housing prices fell for the second consecutive month in December.
Average asking prices in England and Wales fell 3 percent to 222,410 pounds ($351,000) from November, when they dropped 3.2 percent, Rightmove Plc, the operator of Britain's biggest property website said in a report published in London. That's the biggest consecutive monthly drop since Rightmove's index began in 2002.
The U.S. currency rose earlier as Treasury yields advanced.
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.
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.
--With assistance from Yumi Teso in Bangkok and Keith Jenkins in London. Editors: Paul Cox, Greg Storey
