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Yen Declines to Two-Week Low on Speculation Recession Is Easing

The yen declined to a two-week low against the euro on speculation European and U.S. reports this week will show the global recession is easing, damping demand for Japan’s currency as a refuge. The yen fell against all of its 16 most-active counterparts on prospects U.S. companies reporting results this week will announce stronger earnings, spurring investors to buy higher- yield assets. The dollar fell to the lowest in two weeks versus the euro on speculation commercial lender CIT Group Inc. is moving closer to avoiding bankruptcy, reducing the appeal of safer assets such as the U.S. currency. The South Korean won led Asian currencies higher as regional stocks rose for a fifth day.
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“A lot of indicators are showing improvement,” said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington. “The earnings reporting season in the U.S. has gotten off to a fairly solid start. If that trend continues, we’ll see risk appetite to continue to come back. We can expect both the Aussie and the kiwi to outperform the yen.” The yen dropped to 134.18 versus the euro as of 12:15 p.m. in Tokyo from 132.85 in New York last week, the lowest level since July 6. Japan’s currency slid to 94.66 per dollar from 94.19, after slipping to 94.68, the weakest since July 8. The dollar slid to $1.4171 per euro from $1.4102. It earlier declined to $1.4181, the lowest since July 1.
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Asian Currencies
Asian currencies strengthened as regional shares rose. The MSCI Asia-Pacific excluding Japan Index of shares advanced 2.2 percent. South Korea’s won rose 0.6 percent to 1,251.40 per dollar and Indonesia’s rupiah climbed 1.5 percent to 10,030. Commodity currencies also gained. The New Zealand dollar strengthened 1.2 percent to 61.46 yen and the Australian dollar gained 1.1 percent to 76.44 yen. “The seeming stability in equities is encouraging demand for higher-yielding commodity currencies,” said Greg Gibbs, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. “In fact, it would not surprise to see these currencies push higher this week.” Foreign-exchange movements may be volatile in Asia as a national holiday in Japan reduces liquidity, said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. The dollar declined versus 13 of the 16 major currencies before the Conference Board releases its index of U.S. leading economic indicators. The index rose 0.5 percent in June, after a 1.2 percent increase in May, according to a Bloomberg News survey of economists. The gauge points to the direction of the world’s largest economy over the next three to six months. French consumer spending gained 0.3 percent in June from the previous month, when it fell 0.2 percent a separate Bloomberg survey showed. The Paris-based national statistics office will publish the report on July 22.
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‘Encouraging Demand’
The yen and dollar declined before U.S. companies such as State Street Corp. disclose earnings this week. Standard & Poor’s 500 firms that have reported second-quarter results since July 8 topped estimates by 16 percent, according to data compiled by Bloomberg. Thirty out of 38 beat projections. The Dollar Index fell toward a six-week low on speculation New York-based CIT Group will reach a deal with bondholders to secure $3 billion in financing and avoid collapse. The company said last week it probably would not get a second federal bailout following a $2.33 billion loan in December. CIT’s board is scheduled to meet later today to discuss the bridge-financing offer, which would give the company time to restructure its debt outside of bankruptcy, according to a person briefed on the firm’s deliberations.

‘Rally in Risk’
“The news has led to a rally in risk, which may continue in Asia trading today,” analysts led by David Woo, London-based global head of foreign-exchange strategy at Barclays Capital, wrote in a research note today. “We will remain long carry for the week ahead,” referring to bets on higher-yielding currencies. Futures traders increased bets to the highest in five months that the yen will strengthen against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed on July 17. The difference in the number of wagers by hedge funds and other large speculators on a gain in the yen compared with those on a drop -- so-called net longs -- reached 33,567 on July 14, the most since February, versus net longs of 17,117 a week earlier. The figures are sometimes used as a contrary indicator. The Dollar Index, which the ICE uses to track the currency against those of six major U.S. trading partners, fell 0.2 percent to 79.216 today. The index dropped to 79.131 on July 16, the lowest since June 4.
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Swiss Central Bank
Switzerland’s central bankers are breaking the will of foreign-exchange traders with their first solo currency-market interventions since 1992. Less than a month after betting the Swiss National Bank’s franc sales would fail to halt its rise, investors are the least bullish since 2007, options prices show. This year’s five most- accurate franc forecasters in Bloomberg surveys see the currency trading between 1.50 and 1.55 per euro by Dec. 31, the range it has been in since after the bank started intervening March 12. “The SNB has won its battles, and they’ve given no indication that they are ready to end this policy,” said Jessica Hoversen, an analyst in Chicago for futures broker MF Global Ltd. She advises buying euros and selling the franc when it approaches the 200-day moving average. The currency traded at 1.5211 per euro today; the 200-day moving average was 1.5104.

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Source: Bloomberg

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