Bloomberg News

Yen Rises as U.S. Growth Concern, Euro Debt Issues Boost Demand

June 08, 2011

June 8 (Bloomberg) -- The yen strengthened against all its 16 most-traded counterparts as concern about slower U.S. growth and about how European leaders will deal with the region’s debt crisis boosted demand for refuge currencies.

The Australia dollar, Norwegian krone and South African rand declined versus the dollar as reports from Federal Reserve’s district banks showed the economy expanded at a “steady pace” and slowed in four of 12 regions. The euro slid from a one-month high versus the greenback after German Finance Minister Wolfgang Schaeuble said bondholders must contribute a “substantial” share of a second aid package for Greece.

“The yen is up from a risk-aversion standpoint,” said Greg Salvaggio, senior vice president of capital markets at currency-trading firm Tempus Consulting Inc. in Washington. “If you look last week, debt restructuring in Greece was not possible. Now they are putting back on the table the possibility of restructuring and it’s creating a level of uncertainty in the market.”

The yen appreciated 0.3 percent to 79.89 per dollar at 5 p.m. in New York, from 80.09 yesterday, after touching 79.70, the strongest level since May 5. It strengthened 1 percent to 116.51 per euro, from 117.67.

The euro declined 0.7 percent to $1.4583 from $1.4691 yesterday, when it reached $1.4697, the strongest since May 5.

Relative Strength

The yen tends to strengthen during economic and financial turmoil because Japan’s historic trade surpluses makes it less reliant on foreign capital. The seven-day relative strength index for the dollar versus the yen dropped to 24.78, the lowest level since May 5. A reading below 30 signals an asset may be due for a rebound.

The yen rose for a sixth day against the dollar as Fed officials expressed concern over the world’s largest economy.

“The economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed,” Bernanke said in a speech in Atlanta yesterday. At the same time, the Fed “will take whatever actions are necessary to keep inflation well controlled,” he said.

Reports from the Fed “indicated that economic activity generally continued to expand since the last report, though a few districts indicated some deceleration,” the central bank said today in its Beige Book survey of the economy in Washington.

Yen Monitor

Japan’s Finance Minister Yoshihiko Noda told reporters in Tokyo yesterday he would closely monitor the yen’s appreciation while conceding that the market’s view on the U.S. economy was likely behind its moves.

Group of Seven countries jointly intervened in March after Japan’s currency soared to 76.25, its highest level since World War II, threatening the nation’s recovery from the March 11 earthquake and tsunami. The total size of the G-7 intervention has been estimated at about $25 billion.

“Our view is the Bank of Japan will remain at bay, but there might be some sort of verbal intervention,” said Mary Nicola, a New York-based currency strategist at BNP Parisbas SA. “79.50, 79.00 are the important areas in dollar-yen.”

The Australian dollar and Norwegian krone were the two worst performers against the dollar today as lingering concerns over the U.S. economy damped demand for growth-sensitive currencies.

Aussie Drop

Australia’s dollar fell to $1.0623 from $1.0721 yesterday. The Aussie dropped to 84.88 yen from 85.87.

Norway’s krone fell 1.2 percent to 5.4027 per dollar and declined 0.4 percent to 7.8799 versus the euro.

The pound fell against the dollar and the euro after Moody’s Investors Service said the U.K. risks losing its top credit ranking should growth remain weak. It said the outlook on the country’s rating is “stable.” Sterling dropped 0.3 percent against the dollar to $1.6403.

“Slower growth combined with weaker-than-expected fiscal consolidation efforts could cause the U.K.’s debt metrics to deteriorate to a point where we would reconsider our stance,” Francesco Meucci, a Moody’s spokesman, said in a phone interview from Paris.

The measures attached to the IMF loan to Portugal “may fail to alleviate sovereign debt concerns, with an adverse impact on government financing prospects,” the agency’s staff wrote in a May 17 report that was posted on the fund’s website yesterday. The IMF approved the loan to Portugal on May 20 as part of a joint 78-billion euro bailout with the European Union in the latest effort to stem the region’s sovereign-debt crisis.

Schaeuble told European Central Bank President Jean-Claude Trichet and fellow euro finance ministers in a June 6 letter that maturities on Greek bonds should be extended seven years.

Any agreement on aid at a ministers’ meeting on June 20 “has to include a clear mandate -- given to Greece possibly together with the IMF -- to initiate the process of involving holders of Greek bonds,” Schaeuble wrote in the letter.

--With assistance from Yoshiaki Nohara in Tokyo. Editors: Paul Cox, Dave Liedtka

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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