Dollar Drops Versus Yen to Lowest in April as S&P Lowers Outlook
April 18, 2011, 10:58 AM EDTBy Catarina Saraiva
April 18 (Bloomberg) -- The dollar dropped to its lowest level this month against the yen as Standard & Poor’s reduced the U.S. credit outlook to negative while affirming its AAA long-term credit rating.
The euro fell the most in a month versus the yen as yields on Greece’s two-year notes increased to 20 percent for the first time. New Zealand’s dollar dropped against all of its major counterparts as the South Pacific nation’s inflation slowed. The U.S. currency fell for a third day versus the yen as S&P cited rising budget deficits and debt.
“It’s a kick in the pants for authorities to now get their act together in terms of a coherent long-term deficit/debt plan,” said Alan Ruskin, global head of Group of 10 foreign- exchange strategy at Deutsche Bank AG in New York. “It’s given a little bit of a lifeline to euro-dollar.”
The dollar depreciated 0.9 percent to 82.40 yen at 10:49 a.m. in New York, from 83.13 on April 15. The U.S. currency gained 1.4 percent to $1.4229 versus the euro, from $1.4430, after briefly paring its advance. The euro dropped as much as 2.5 percent to 116.98 yen in the biggest intraday decrease since March 17 before trading at 117.06, compared with 119.96.
The yen rose versus most of its major counterparts on reduced demand for assets related to economic growth as China said yesterday it will raise banks’ reserve requirements to cool inflation. Central bank Governor Zhou Xiaochuan said monetary tightening will continue for some time.
New Zealand Dollar
The New Zealand dollar dropped as much as 1.8 percent to 78.53 U.S. cents in its biggest intraday drop since falling 2.2 percent on March 17 before trading at 78.57 cents, compared with 79.95 on April 15. The kiwi slid 1.7 percent to 78.56 yen.
The nation’s consumer prices rose 0.8 percent in the first quarter from three months earlier, the government said today. The median forecast of 12 economists in a Bloomberg News survey was for a 1 percent increase.
The euro fell against the yen as Greek two-year government bond yields surged to 20 percent for the first time since at least 1998, when Bloomberg began compiling the data. The cost of insuring Greek government debt rose to a record today, with the contracts indicating investors see a greater than 64.5 percent chance the nation will default within five years.
“The euro is being pressured,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “Much of the price action is motivated by events and news of Europe. Credit spreads are widening out in the euro-zone periphery, and the market is taking back short U.S. dollar positions.” A short is a bet an assets will drop in value.
Greece’s Debt
The government of Greece asked the International Monetary Fund and the European Union to extend the maturities of all the country’s debt, Eleftherotypia newspaper said.
Finance Minister George Papaconstantinou brought the request to EU finance ministers at their meeting in Hungary on April 8-9 and to representatives of the EU, European Central Bank and IMF who visited Athens in April, the Athens-based newspaper said, without saying where it got the information.
“Restructuring is not an issue we’re discussing,” Papaconstantinou said in Washington on April 16.
Support for the True Finns, whose leader Timo Soini has said taxpayers shouldn’t have helped rescue Greece or Ireland, jumped almost 15 points to 19 percent in Finland’s elections, the Justice Ministry said.
The True Finns will seek a majority that allows them to block the euro region’s bailout mechanism, Soini has said. The pro-Europe National Coalition led by Finance Minister Jyrki Katainen won 20.4 percent to become Finland’s biggest party for the first time.
‘Some Problems’
“We’re looking at a couple of days of uncertainty about who will form the next coalition government in Finland, what their political stripes might be, and how they feel about the euro-zone bailouts,” said Gareth Berry, a foreign-exchange strategist at UBS AG in Singapore. “There are potentially some problems for the euro flowing from this.”
Concern the euro region’s periphery is struggling to contain its debt may not be enough to stop ECB policy makers from raising interest rates again this year.
Forecasts that the key rate will be increased by another half-percentage point in 2011 are “well-founded,” Austria’s Ewald Nowotny told Bloomberg News in Washington on April 16. Luc Coene of Belgium said in an interview yesterday that monetary “conditions are too accommodative.”
The euro has strengthened 3.08 percent this year, according to Bloomberg Correlation-Weighted Indexes, which measure the 10 most widely traded currencies. It has trailed only the Norwegian krone and the Swedish krona.
--Editors: Dennis Fitzgerald, Paul Cox
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net
