BLBG: Dollar, Yen Advance on Middle-East Violence; Kiwi Slumps After Earthquake
The dollar and the Swiss franc rose against most of their major counterparts as violence in Libya boosted demand for the currencies as a refuge.
The yen also advanced versus the majority of its peers. The dollar climbed to a one-week high versus the euro after reports that the Libyan government attacked protesters and rebels claimed control of the second-biggest city, Benghazi. New Zealand’s dollar slumped after an earthquake struck the nation’s second-largest city, Christchurch, killing at least 65 people. The euro pared its decline after European Central Bank council member Yves Mersch warned of faster inflation.
The violence “is the root of the moves we’ve seen in currency markets,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. “As long as the focus is on the Middle East, the safe-haven currencies will outperform.”
The dollar strengthened 0.3 percent to $1.3642 per euro as of 11:16 a.m. in London. It advanced earlier to $1.3525, the strongest since Feb. 16. The franc jumped 0.8 percent to 1.2845 per euro, after reaching 1.2792, the strongest level since Jan. 31. The yen appreciated 0.6 percent to 113.09 per euro. Japan’s currency traded at 82.94 per dollar from 83.14, gaining for a fifth day.
The MSCI Asia Pacific Index of shares slid 1.8 percent, while the Stoxx Europe 600 Index fell for a third day, sliding 1 percent. Brent crude oil gained as much as 2.7 percent to the most since September 2008.
‘Rivers of Blood’
“I would not be surprised at most colleagues concluding that we have upside risks to price stability,’’ Mersch said in an interview in Luxembourg yesterday. With the economy strengthening and inflation in breach of the ECB’s 2 percent limit, policy makers will “inevitably” have to “rebalance our monetary policy stance,” Mersch said, without giving a timeframe.
The yen headed for its longest run of gains against the dollar this year even as Moody’s Investors Service lowered the outlook on Japan’s debt rating.
The dollar gained versus 14 of its 16 major counterparts. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, advanced 0.2 percent to 77.879.
Libya erupted into violence yesterday when Muammar Qaddafi’s son threatened “rivers of blood” and deployed security forces on protesters. U.S. Secretary of State Hillary Clinton said “the world is watching the situation in Libya with alarm.” The holder of Africa’s largest oil reserves has been rocked by protests after last month’s ousting of Tunisia’s president and the Feb. 11 fall of Egyptian President Hosni Mubarak.
‘Outraged’
United Nations Secretary-General Ban Ki-moon was “outraged at press reports that the Libyan authorities have been firing at demonstrators from warplanes and helicopters,” according to a statement released yesterday by his spokesman.
Japan’s currency pared gains after Moody’s Investors Service changed its outlook on the government’s credit rating to negative from stable.
“The yen was sold briefly” after the Moody’s announcement,” said Hitoshi Asaoka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second- largest bank. “But the news wasn’t surprising after Standard & Poor’s took similar action, limiting the impact.”
S&P cut Japan’s credit rating for the first time in nine years last month, citing a lack of a “coherent strategy” to address the nation’s debt burden.
Kiwi Slides
New Zealand’s dollar slid versus all its major counterparts, dropping 2.5 percent versus the Swiss franc, after the 6.3 earthquake caused multiple deaths and toppled buildings.
“The risk is that we see the market price out tightening from the Reserve Bank in October, and that probably drags the New Zealand dollar down,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp, Australia’s second-largest lender. “The earthquake has caught the market in a risk-averse mood anyway with the yen strengthening and oil prices rising on tensions in the Middle East.”
New Zealand’s dollar fell 2 percent to 74.84 U.S. cents, after falling to 74.55 cents, the weakest since Dec. 23. The so- called kiwi fell to 62.07 yen from 63.51 yen.
The euro may weaken to a five-month low against the dollar after dropping below key technical levels today, Ueda Harlow Ltd. said, citing trading patterns.
Downward pressure is mounting on the single currency after it fell below its 5- and 20-day moving averages, said Toshiya Yamauchi, a senior currency analyst at the foreign-exchange margin-trading company in Tokyo. The currency is now poised to decline toward a trend line connecting the high reached on Jan. 4 and the low touched on Feb. 14, Yamauchi said.
The five-day moving average was at $1.3624 and the 20-day average was at $1.3640.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
