The yen fell against higher-yielding currencies including the Mexican peso and Australian dollar as stocks rose, reducing demand for a refuge.
The dollar advanced from almost a three-month low against the euro on concern the greenback’s recent drop would be hard to sustain. The U.S. currency declined 1.7 percent last week as investors speculated that a stalling economy may force the Federal Reserve to consider more stimulus at its meeting tomorrow. The yen fell versus most its major counterparts today.
“It’s the risk trade,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York.
The yen weakened 0.2 percent to 85.72 per dollar at 9:16 a.m. in New York, from 85.51 on Aug. 6. It reached 85.02 yen last week, the strongest level since Nov. 27. The Japanese currency fetched 113.48 per euro, compared with 113.55 last week. The dollar gained 0.3 percent to $1.3235 per euro, from $1.3280 on Aug. 6, when it declined to $1.3334, the weakest level since May.
The seven-day relative strength index of the euro versus the dollar touched 71.3. Readings above 70 indicate an asset’s value may have risen too fast and be poised for a reversal.
U.S. nonfarm payrolls lost 131,000 jobs in July, the Labor Department said on Aug. 6, more than the drop of 65,000 forecast in a Bloomberg News survey. Inflation excluding food and energy slowed to 0.1 percent in July, according to a separate survey before the Labor Department’s Aug. 13 report.
‘Uncertain’ Outlook
Speculation the Federal Open Market Committee will restart its bond-buying program to support the economy has mounted since central bank Chairman Ben S. Bernanke said July 21 the outlook “remains unusually uncertain,” even as policy makers signaled they will probably pass on providing more stimulus at their meeting tomorrow.
St. Louis Fed President James Bullard wrote in a paper released last month that the central bank should resume purchases of Treasuries if the economy slows and prices fall and that “the U.S. is getting closer to a Japanese-style outcome than any time in recent history. Philadelphia Fed President Charles Plosser said in a Bloomberg News interview in July that calls for more Fed stimulus are premature.
The yen slid 0.6 percent to 6.78 versus the Mexican peso, and the franc declined 0.2 percent to 1.6592 per pound as a gain in stocks encouraged carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. The target lending rate of 0.1 percent in Japan makes the yen popular for funding such transactions.
The Stoxx Europe 600 Index advanced 1.4 percent, while Standard & Poor’s 500 Index futures expiring in September increased 0.4 percent.
Japan ‘Status Quo’
The Bank of Japan will probably keep its benchmark rate unchanged at its meeting this week, according to all of the 16 economists in a Bloomberg News survey.
“A likely combination of the BOJ’s status quo and a dovish FOMC statement should keep alive negative sentiment for dollar- yen,” Tomoko Fujii, senior director and currency strategist at Bank of America Merrill Lynch in Tokyo, wrote in a note to clients today. “Barring further sharp yen appreciation, the BOJ will probably find it difficult to ease policy before the FOMC’s policy announcement.”
European stocks rose as a report showed today that Germany’s exports rose in June more than economists forecast. Sales abroad, adjusted for working days and seasonal changes, rose 3.8 percent from May, when they increased a revised 7.9 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 1.5 percent, according to the median forecast of 11 analysts.
‘Better Than Expected’
European Central Bank President Jean-Claude Trichet said on Aug. 5 the “available data for the third quarter are better than expected,” after ECB policy makers kept the main refinancing rate at a record low of 1 percent. “The market is functioning a little bit better,” he said.
Three years ago today, the ECB provided an unprecedented 95 billion euros ($126 billion) as the credit crisis made commercial banks unwilling to lend to each other.
Goldman Sachs Group Inc. cut its outlook for the U.S. and Japan, citing the likelihood of a “significant falloff” from stimulus measures and slowing export growth for Japan. The company reduced its full-year 2011 growth forecast for Japan’s real gross domestic product to 1.4 percent from 1.7 percent and trimmed its 2011 estimate for U.S. growth to 1.9 percent from 2.5 percent.
The euro’s rally from a four-year low in June resulted in losses for followers of bears from Paul Volcker to Dennis Gartman.
Since Volcker, the 82-year-old former Fed chairman, said May 13 the euro may face “disintegration,” it’s up 5.99 percent against the dollar. Traders who held off purchasing the common currency on June 18, when Gartman called it “doomed,” missed a 7.3 percent return. Buying on May 6, when Trichet said the euro was a “good store of value,” earned 5.28 percent.
By Catarina Saraiva and Bo Nielsen
Tags: bank of america, bank of japan, commercial banks, economists, economy activity, european stocks, Federal Reserve, investors
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