Bloomberg News

Yen Set for Week Drop Before U.S. Jobs Data; German Exports Rise

July 08, 2011

July 8 (Bloomberg) -- The yen headed for a weekly drop against most of its major peers before data that may show the U.S. added jobs for a ninth month and after German exports rose by more than forecast, reducing demand for haven currencies.

The Swiss franc, a traditional refuge from financial turmoil, slid for a second day. Australia’s currency was less than 0.1 percent from a two-month high as a global rally in stocks supported demand for higher-yielding assets. The euro fell this week against 15 of 16 counterparts tracked by Bloomberg on concern more countries will be dragged into the region’s sovereign-debt crisis.

“We’ve seen good news stories lapped up by traders this week, resulting in significant flow into higher-yielding currencies and keeping the yen on the back foot,” said Tim Waterer, a currency dealer at CMC Markets in Sydney. “If we saw a positive result in the non-farm payrolls report today, we could see an extension in the gains for riskier currencies.”

The yen traded at 81.33 per dollar as of 8:53 a.m. in London, from 81.25 in New York yesterday, headed for a 0.6 percent weekly decline. The Japanese currency strengthened to 116.50 per euro from 116.70 yesterday.

The dollar rose 0.3 percent to $1.4324 per euro. It yesterday touched $1.4221, the strongest since June 27. The U.S. currency is set for a 1.4 percent weekly gain against the 17- nation euro. The Swiss franc dropped 0.6 percent versus the greenback to 84.92 centimes.

Dollar’s Weekly Gain

The yen has fallen 0.2 percent in the past week against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Currency Indexes. The euro has dropped 1 percent while the dollar has risen 0.4 percent.

Nonfarm payrolls increased by 105,000 in June after an advance of 54,000 in the prior month, according to the median estimate of 85 economists in a Bloomberg News survey before today’s report from the Labor Department. The unemployment rate probably stayed at 9.1 percent, according to a separate survey. Estimates in Bloomberg’s poll range from 40,000 to 175,000.

The dollar’s advance versus the euro was curbed by speculation that the gain in jobs won’t be enough to spur the Federal Reserve to increase borrowing costs. The Federal Open Market Committee has kept its benchmark rate unchanged between zero and 0.25 percent since December 2008.

‘Massive Upside’

Futures contracts showed the likelihood of an increase in the fed funds target rate by the March 2012 meeting fell to 23 percent, from 26 percent odds a week ago.

“The payrolls number has to be a massive upside surprise or a big disappointment to be dollar positive,” said Robert Ryan, a currency strategist at BNP Paribas SA in Singapore. “Otherwise it’s going to be neutral to positive for risk.”

The MSCI Asia Pacific Index of stocks rose 0.6 percent, while the Stoxx Europe 600 Index gained 0.2 percent.

Australia’s dollar traded little changed at $1.0775 after rising to $1.0790 on July 1, the most since May 11.

European officials remain at odds over the best way to handle the region’s sovereign-debt crisis, which took another lurch forward when Portugal’s debt was cut below investment grade by Moody’s Investors Service on July 5. Discussions over how to include private investors in a second bailout for Greece are ongoing, helping to drive up borrowing costs at other European nation’s debt sales pending the outcome.

By comparison, Australia’s Prime Minister Julia Gillard has pledged to return the nation’s budget to surplus by 2013 while Canada’s government has forecast a surplus of C$4.2 billion ($4.3 billion) for the 2015 fiscal year.

ECB Rates

“The euro has scope for further underperformance versus the currencies of more fiscally-sound countries, like the Australian and Canadian dollars,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “We still haven’t got any clarity as to the extent of private sector involvement in the second bailout for Greece, so that continues to boil away in the background.”

The euro rose yesterday, paring its weekly drop, after European Central Bank President Jean-Claude Trichet signaled more interest-rate increases after raising the benchmark to 1.5 percent yesterday.

“Our monetary-policy stance remains accommodative,” Trichet said at a press conference in Frankfurt. “It is essential recent price developments do not give rise to broad- based inflation pressures over the medium term.”

German exports, adjusted for work days and seasonal changes, rose 4.3 percent in May, the Federal Statistics Office in Wiesbaden said today. The median economist forecast in a Bloomberg survey was for an increase of 1.5 percent.

Euro ‘Leg Up’

Trichet said the ECB will suspend its minimum credit-rating threshold on Portuguese bonds after Moody’s Investors Service lowered the nation’s debt to junk. The suspension will be maintained “until further notice,” he said. This follows the waiving of minimum thresholds for Greek and Irish bonds.

“The euro has got a leg up from the surprise ECB announcement on accepting Portuguese debt as collateral and also from signals that we may see more rate increases over the next few months,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender.

--Editors: Matthew Brown, Keith Campbell

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.


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