BLBG: Yen Falls to Two-Month Low Versus Euro as Risk Appetite Rises
By Yasuhiko Seki and Ron Harui
Oct. 23 (Bloomberg) -- The yen tumbled to a two-month low against the euro as demand for higher-yielding assets rebounded on an earnings-sparked advance in stocks and mounting evidence the global economy is recovering.
Japan’s currency headed for a weekly decline versus 13 of its 16 most-traded counterparts as Asian shares extended a rally in U.S. equities and before reports forecast to show improvements in German business confidence and U.S. home sales. The pound climbed to a five-week high against the dollar ahead of data economists say will indicate the British economy expanded for the first time since March 2008.
“Risk-taking sentiment is firm amid signs economies around the world are recovering,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “The yen and the dollar are likely to be sold as their interest rates will probably stay extremely low.”
The yen fell to 137.71 per euro at 6:20 a.m. in London from 137.24 in New York yesterday. It earlier reached 137.84, the weakest level since Aug. 13. The currency declined to 91.66 per dollar from 91.30. The euro was $1.5024 from $1.5033 after earlier touching $1.5060, the strongest since August 2008.
The pound rose to $1.6640 from $1.6624, after earlier reaching $1.6678, the highest since Sept. 14. The dollar was at 1.0056 Swiss francs from 1.0045 francs yesterday after earlier trading at 1.0034, the lowest since July 2008.
Australia, New Zealand
The yen headed for a third weekly drop against the Australian and New Zealand dollars as Asian stocks advanced and on bets the South Pacific nations will increase interest rates faster than other developed countries.
The MSCI Asia Pacific Index of regional shares rose 0.7 percent today. The Standard & Poor’s 500 Index increased 1.1 percent yesterday in New York.
Better-than-expected earnings at companies from Travelers Cos to McDonald’s Corp. boosted optimism the recession in the world’s largest economy is over. Profits have topped estimates at 79 percent of the companies in the S&P 500 that have released results, according to Bloomberg data. That would mark the highest proportion in data going back to 1993.
Benchmark interest rates are 3.25 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Australia’s dollar rose to 85.03 yen from 84.61 yen yesterday, heading for a 2.1 percent gain this week. New Zealand’s dollar climbed to 69.37 yen from 69.17 yen, and set for a 3 percent advance for the week.
German, U.S. Data
The euro was poised for a third weekly gain against the yen on optimism the economy in the 16-nation region is on the mend.
The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 92 in October from 91.3 in the previous month, according to a Bloomberg News survey before the data release today.
“Traders will be looking for signs the euro-zone economy is still recovering to remain comfortable with buying the single currency above $1.5000,” John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., wrote in a research note today.
European Central Bank council member Erkki Liikanen said this week on Finland’s YLE Radio Suomi that the euro area’s economy is no longer weakening.
Sales of existing homes in the U.S. rose in September to an annual rate of 5.35 million, a two-year high, according to the median forecast of 76 economists in a Bloomberg survey. The report from the National Association of Realtors is due at 10 a.m. in Washington.
British Pound
The pound was set for a second weekly gain versus the dollar as the Office for National Statistics will say today the U.K. economy expanded 0.2 percent in the third quarter from the previous period, according to a Bloomberg survey of economists.
The Bank of England should pause its 175 billion-pound ($292 billion) bond-purchase program as the U.K. emerges from recession, the National Institute for Economic and Social Research said on Oct. 21. Gross domestic product will probably expand 0.7 percent in the fourth quarter, the London-based institute said.
“There is a perception among some in the market that the U.K. economy is recovering,” said Shinichi Hayashi, a Tokyo- based dealer at Shinkin Central Bank, the central institution for Japan’s financial cooperatives. “There’s talk that the pound is being bought on this view.”
U.K. policy makers will reassess the scale of their asset- purchase program at their Nov. 5 decision, minutes of the October meeting showed this week.
Won Rises
South Korea’s won was the biggest gainer against the greenback today amongst the 16 most-traded currencies as the nation’s expanding economy and improving corporate earnings helped draw funds from abroad.
“The fundamentals remain supportive of the stock market and the won,” said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “It seems that the global economy is on the mend and South Korea has been leading the turnaround in the region.”
The won climbed 0.9 percent to 1,179.43 per dollar, according to data compiled by Bloomberg. The currency yesterday touched 1,192.75, the weakest level since Sept. 29.
South Korea’s gross domestic product increased 1.9 percent in the three months through September, according to the median forecast of 14 economists surveyed by Bloomberg News before a central bank report on Oct. 26. The economy expanded 2.6 percent in the second quarter, the fastest pace since 2003.
Bullish on Yuan
Investors are the most bullish on the yuan in 14 months as China’s exporters say the currency’s link to the slumping dollar is helping revive sales.
Contracts based on expectations for the currency’s value a year from now show the yuan will appreciate 2.8 percent, compared with estimates for 0.5 percent two months ago, data compiled by Bloomberg show. Twelve-month non-deliverable forwards touched 6.5440 per dollar on Oct. 20, the strongest level since August 2008. They were at 6.6384 yesterday, compared with a spot exchange rate of 6.8277 today.
The dollar’s decline against all 16 of the most-active currencies in the past six months has made Chinese exports more competitive because the government has pegged the yuan to the greenback since July 2008.
