Bloomberg News

Yen Advances as Signs of Slowing Growth Boost Bids for Safety

June 06, 2011

June 6 (Bloomberg) -- The yen rose for a fourth day against the dollar in the longest winning streak in more than a month and gained versus the euro as signs of a slowing global economy and a drop in stocks spurred demand for a refuge.

The euro fell against a majority of its 16 most-traded counterparts after Jean-Claude Juncker, head of the euro-area finance ministers, said it’s overvalued. The Dollar Index rose for the first time in three days as global stocks declined. The Norwegian krone was one of the biggest losers against the dollar among major currencies as crude oil fell below $100 a barrel.

“We’ve seen risk aversion move back into the fore,” said Joe Manimbo, a market analyst in Washington at Travelex Global Business Payments, a currency-exchange network. “Equities are one of the key drivers today. They aren’t down by a whole lot, but the fact they are extending five weeks of losses is keeping investors wary of venturing back into higher-yielding assets.”

Japan’s currency touched a level stronger than 80 versus the dollar for the first time since May 5 before trading at 80.10 at 5 p.m. in New York, compared with 80.34 on June 3. The yen advanced 0.6 percent to 116.75 against the euro, from 117.48. The euro fell 0.4 percent to $1.4576 after earlier rising to $1.4658, the highest level since May 5.

John Taylor, founder of the world’s largest currency-hedge fund, said he’ll buy the dollar as soon as the next few days because the rally in higher-yielding assets will come to an end amid sluggish U.S. economic growth.

Shorting the Euro

Taylor, 67, who manages about $8.5 billion, is shorting the euro and buying the yen because of questions on how Europe will resolve its sovereign-debt crisis. A short is a bet the price of an asset will fall. FX Concepts will begin betting the dollar will gain versus the euro, he said.

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, rose 0.3 percent to 73.979. It earlier fell to 73.64, the lowest level since May 5.

The Standard & Poor’s 500 Index slid 1.1 percent today after falling every week since the end of April. The MSCI World Index declined 0.8 percent.

The yen’s gain helped to pare its decline this year. The currency is down 4.8 percent versus the currencies of nine other developed nations as measured by Bloomberg Correlation-Weighted Indexes. It has still beaten the dollar, which dropped 6.1 percent during the same period, making it the worst performer.

‘Extremely Sensitive’

“Because we are so close to the 80 level in dollar-yen, and we have bounced off of it a few times, that cross is going to be extremely sensitive,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London. “Because of the technical position in dollar-yen, you can see where people are starting to get a bit nervous about a break lower.”

The euro extended its decline against the dollar as Luxembourg Prime Minister Juncker said European Central Bank President Jean-Claude Trichet’s proposal to create a euro-area finance ministry “‘won’t work.” Juncker, speaking to a European Parliament committee in Strasbourg, France, said the euro area has no exchange-rate objective.

“I’m more inclined to think that we should have an exchange-rate policy,” said Juncker.

The euro is “rather overvalued” against other major currencies, he told the committee.

Some euro-area “member states see their life made difficult by the rather overvalued rate at the moment,” Juncker said.

The shared currency is trading 22 percent above its four- year low of $1.1877 reached a year ago tomorrow.

ECB Rate

The European Central Bank is expected to leave its 1.25 percent main refinancing rate unchanged at its June 9 meeting, according to all 52 economists in a Bloomberg News survey. A separate survey of economists shows they expect the rate to rise to 1.75 percent by the end of this year.

“A lot of good news is priced into the euro right now, said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York. “Any sort of wobble with respect to sovereign debt, any kind of disappointment that the ECB gives on Thursday, there’s more downside than upside for the euro.”

Norway’s krone fell against most of its 16 most-traded counterparts tracked by Bloomberg as July futures for crude oil, its largest export, fell as much as 1.7 percent to $98.55 a barrel in New York.

The krone depreciated 1 percent to 5.3817 per dollar and slid 0.5 percent against the euro to 7.8437.

--With assistance from Cecile Vannucci and Catarina Saraiva in New York and Anchalee Worrachate in London. Editors: Greg Storey, Dennis Fitzgerald

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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