The yen and the dollar gained against most major counterparts as signs the global economic recovery is faltering fueled demand for the safest currencies.
The Japanese currency remained the top performer among the most-traded currencies even after data showed U.S. jobless claims declined last week. Stocks fell on concern Europe’s debt crisis is worsening. Federal Reserve officials said yesterday financial conditions have become “less supportive” of growth and a report showed new home sales fell in May to a record low.
“People are still sort of weary to put on new risk positions, so you’re seeing things drift into the safe havens,” Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “In the times of low risk sentiment, the yen does well, the dollar does well.”
The yen strengthened 0.5 percent to 89.37 per dollar at 10:07 a.m. in New York, from 89.82 yesterday. It touched 89.25 earlier, the strongest since May 21. The euro fell 0.5 percent to 109.97 yen, from 110.57, and was little changed versus the dollar at $1.2308, after falling earlier as much as 0.4 percent.
The dollar and yen pared gains after Labor Department data showed the number of Americans applying for initial unemployment benefits declined by 19,000 to 457,000 in the week ended June 19, slipping from a two-month high.
Commerce Department data showed orders for durable goods dropped in May for the first time in six months, falling 1.1 percent, as demand for aircraft retreated. Orders for durables excluding transportation rose 0.9 percent, less than forecast.
The Standard & Poor’s 500 Index tumbled 0.9 percent, and the Stoxx Europe 600 Index of European shares fell 0.8 percent.
Greek Debt
Credit-default swaps on the government debt of Greece, whose budget deficit set off Europe’s debt crisis, rose 38 basis points to a record 970, according to CMA DataVision. The yield on the 10-year Greek government bond increased as much as 9 basis points, or 0.09 percentage point, to 10.46 percent, according to Bloomberg prices.
The yen has risen 12 percent this year, the best performance among 10 developed-nation currencies, according to the Bloomberg Correlation-Weighted Currency Indices. The euro was the worst performer, falling 9.5 percent.
The euro will eventually trade much lower against the dollar as the differences between the region’s economies put the project under pressure, according to Stephen Jen, managing director of macroeconomics and currencies at BlueGold Capital Management LLP.
The dollar zone, countries including China that peg their currencies to the dollar, is breaking up because of different speeds of economic growth, Jen said at “The Sovereign Debt Briefing” in London hosted by Bloomberg Link.
‘Exceptionally Low’
“Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad,” the policy-setting Federal Open Market Committee said in its statement. “The pace of economic recovery is likely to be moderate for a time.”
‘Risk-off Move’
Leaders from the Group of 20 major economies will meet to discuss the global economy June 26-27 in Toronto.
“The FOMC statement seemed to downgrade growth a notch and characterized underlying inflation as ‘trended lower’ following exceptionally poor housing data,” Brown Brothers Harriman & Co. analysts including Marc Chandler in New York wrote in a note to clients today. “There seems to be growing concern about growth in the second half of 2010 and into 2011.”
A Commerce Department report yesterday showed sales of new homes slumped a record 33 percent in May to an annual pace of 300,000, the least in data going back to 1963. The drop came as a tax credit expired, showing the market remains dependent on government support.
“The housing market, which is a big part of the American economy, is in trouble,” said Lane Newman, director of foreign exchange at ING Groep NV in New York. “The theme for now is you look to get risk off.”
The Australian dollar gained versus New Zealand’s currency as Prime Minister Kevin Rudd resigned after a leadership challenge from his deputy, sparking speculation the government will change a proposed mining tax.
New Zealand’s dollar also weakened after the nation’s economic expansion in the first quarter met analysts’ expectations and on speculation its more than 1 percent gain yesterday was too rapid.
The Australian dollar rose 0.3 percent to NZ$1.2274.
By Catarina Saraiva and Bo Nielsen
Tags: commerce department, debt crisis, economic recovery, financial system, Global Economy, home sales, unemployment, us, us economic, us federal reserve
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