Bloomberg News

Dollar, Yen Gain as Global Slowdown Concern Boosts Haven Demand

September 30, 2011

Sept. 30 (Bloomberg) -- The dollar and the yen strengthened as growing evidence that the global economy is slowing boosted investor demand for currencies perceived as being the safest.

The 17-nation euro posted its biggest monthly decline against the yen in more than a year after data showed German retail sales fell by more than economists forecast and U.S. consumer spending slowed in August. New Zealand’s dollar extended its second week of losses against its U.S. counterpart after Standard & Poor’s joined Fitch Ratings in cutting the nation’s credit ratings. The Swiss franc strengthened against the euro even after the central bank said it will prevent currency gains.

“Today is a good reminder of the struggles the currency markets have faced throughout the entire quarter: that’s been concerns about global growth and then you’ve got the euro zone’s long-running debt crisis,” said Joe Manimbo, a market analyst in Washington at Travelex Global Business Payments, a currency- exchange network. “The dollar, overall, is making some nice gains against the euro.”

The dollar strengthened 1.5 percent to $1.3387 per euro at 5 p.m. in New York, extending its advance this month to 7.3 percent. The Japanese currency gained 1.3 percent to 103.12 per euro, set for a 7 percent advance this month. The greenback rose 0.3 percent to 77.06 yen, after touching the strongest level since Sept. 15.

Kiwi Weak

The New Zealand dollar sank for a third day, dropping 1.3 percent to 76.14 U.S. cents, taking its loss this week to 2 percent and its monthly decline to 11 percent.

The yen has gained 12.6 percent in the past three months, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar is up 7.1 percent, while the euro is down 2 percent.

Brazil’s real fell the most against the dollar today among the major currencies, dropping 2.1 percent to 1.8794. Canada’s dollar touched C$1.0504, its weakest level since Sept. 8, 2010.

The Swiss National Bank will enforce the cap on the franc with all its determination, central bank President Philipp Hildebrand said at an event in Geneva yesterday.

“We will defend the ceiling with all measures,” Hildebrand said. He declined to comment on the extent of the central bank’s currency purchases to maintain the cap, calling the measure “credible.”

Franc Ceiling

The SNB on Sept. 6 imposed a franc ceiling of 1.20 versus the euro and resumed purchases of foreign currencies to protect exports as the euro-zone debt crisis drove investors toward the relative safety of the Swiss currency.

The franc strengthened as much as 0.6 percent before trading up 0.3 percent to 1.2157 per euro.

Signs that the euro area’s debt crisis is hurting the region’s economy have prompted speculation that the European Central Bank will lower borrowing costs next week.

Eight of 32 economists surveyed by Bloomberg News said the central bank will cut its benchmark interest rate by at least a quarter-percentage point from the current rate of 1.5 percent at its Oct. 6 policy meeting. The others expect no change.

European inflation unexpectedly accelerated to the fastest in almost three years in September, complicating the ECB’s task as it fights the region’s worsening sovereign-debt crisis.

The euro-area inflation rate jumped to 3 percent this month from 2.5 percent in August, the European Union’s statistics office in Luxembourg said today in an initial estimate. That’s the biggest annual increase in consumer prices since October 2008. Economists had projected inflation to hold at 2.5 percent, according to the median estimate in a Bloomberg survey.

ECB Reading

Swaps traders are betting the central bank will lower the rate by 40 basis points over the next 12 months, according to a Credit Suisse Group AG index. That compares with a 25 basis- point increase projected at the beginning of August.

“The European economy has slowed, but it’s not enough to justify another easing,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “A steady hand from the ECB will probably help the euro a little bit next week, but it’ll only be a temporary respite from a lively, very sharp fall.”

Franulovich said the euro will trade in the low $1.30s by the end of the year.

German retail sales, adjusted for inflation and seasonal swings, slumped 2.9 percent in August from July, when they rose 0.3 percent, the Federal Statistics Office in Wiesbaden said today. That’s the biggest drop since May 2007. Economists forecast a 0.5 percent decline. Sales rose 2.2 percent in the year.

Consumer Mood

Consumer spending in the U.S. gained 0.2 percent in August after a revised 0.7 percent increase the previous month, Commerce Department figures showed today.

New Zealand lost its AAA grades on local-currency debt at Fitch Ratings and Standard & Poor’s, which both cited concerns about the nation’s fiscal burden. The outlook is stable after the long-term local-currency rating was reduced to AA+ and the foreign-currency rating was cut to AA from AA+, S&P said in a statement, matching actions announced yesterday by Fitch.

Japanese Finance Minister Jun Azumi said he’s asked for the issuance limit of bills to finance foreign-exchange intervention to be raised by 15 trillion yen.

He also told reporters in Tokyo today that the ministry’s monitoring of financial institutions’ foreign-exchange market positions will be extended to the end of December.

--With assistance from Monami Yui in Tokyo. Editors: Paul Cox, Dave Liedtka

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Garth Theunissen in London gtheunissen@bloomberg.net

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


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