The yen climbed from an 11-month low against the dollar as investors wagered that its largest three-day decline since November may have happened too quickly.
The pound weakened for the first time in three days against the euro after Fitch Ratings said the U.K. risks losing its top investment grade. New Zealand’s dollar rallied as the nation’s manufacturing expanded at the fastest pace since 2010. Switzerland’s franc gained against the euro and dollar after the central bank increased the nation’s growth forecast.
“We may have gotten ahead of ourselves with Japan looking like they were more willing to ease and the Fed looking less likely to ease and therefore the move in dollar-yen,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. (BK) “Dollar buying has stalled and some paring back of dollar long positions has prompted the dollar-yen move.” A long is a bet an asset will strengthen.
The yen rose 0.2 percent to 83.57 per dollar at 5 p.m. New York time. It earlier touched 84.18, the weakest since April 2011. Japan’s currency ended its biggest four-day intraday decline yesterday in four months as the 14-day relative strength index for the pair was below the 30 level for a fifth day, which indicates an asset may have fallen too far too fast.
Japan’s currency fell 0.2 percent to 109.32 versus the euro. The shared currency gained 0.4 percent to $1.3080.
The U.K. currency fell against 11 of its 16 major counterparts after Fitch changed its rating outlook yesterday on Britain to negative, citing a weak recovery and high debt levels.
Sterling declined 0.1 percent to 83.26 pence per euro and added 0.2 percent to $1.5711.
“The Fitch announcement is news to the market because its focus had shifted from the U.K.’s fiscal position,” said Aroop Chatterjee, a currency strategist at Barclays Capital Inc. in New York. “The U.K. has been on an improving trajectory on the fiscal front. But ever since European risks had subsided, the market has turned its focus on other fiscally weak countries out there, the U.K. being one and Japan being another one.”
The pound may decline 2.8 percent to $1.5235 should it end a day’s trading below a key level of $1.5643, said Karen Jones, head of fixed-income, commodity and currency technical analysis in London Commerzbank AG.
Fitch’s said its decision “reflects the very limited fiscal space to absorb further economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery.” The U.K. government is implementing the biggest squeeze on government spending since World War II as it attempts to reduce the nation’s deficit.
Japan’s yen has tumbled 5 percent in the past month, the worst performer in Bloomberg Correlation-Weighted Indexes, which tracks 10 developed-nation currencies. The dollar climbed 1.1 percent, and the euro gained 0.6 percent.
The Japanese central bank unexpectedly added 10 trillion yen ($120 billion) to its asset-purchase program at its Feb. 14 meeting and Governor Masaaki Shirakawa indicated the central bank will keep using monetary policy as a tool to tackle deflation on March 13. The Federal Reserve raised its outlook for U.S. growth at its meeting the same day, reducing expectations of a third round of bond purchases.
The extra yield investors receive from holding Treasury two-year notes instead of similar-maturity Japanese debt widened to 24 basis points, or 0.24 percentage point, the close to the most since July, increasing the attractiveness of dollar assets as manufacturing the in New York region expanded in March at the fastest pace since June 2010, according to the Federal Reserve.
“Looks like dollar-yen is being taken to the woodshed this morning by people squaring up quite aggressively or trying to force out the dollar longs,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank. (TD) “Despite those better U.S. numbers, the dollar is not really benefiting this morning.”
Intercontinental Exchange Inc. reported record daily volume in the Dollar Index (DXY) yesterday, which it uses to track the greenback against six major trading partners. Contracts traded reached 82,689, with a notional value of more than $6.6 billion. That compares with the average daily in February of 29,073 contracts and the previous volume record of 81,814 set in June 2011.
The gauge, which is weighted 57.6 percent to movements in the 17-nation euro, fell for the first time in three days, declining 0.4 percent to 80.244.
The rand strengthened as global stocks and commodity prices rebounded from losses yesterday, buoying higher-yielding currencies. MSCI World Index of stocks rose 0.7 percent. Gold, the nation’s largest export, rose 0.8 percent to $1,657 an ounce in New York.
The rand rose 1 percent to 7.6280 per dollar.
New Zealand’s currency, nicknamed the kiwi, added 1.2 percent to 81.91 U.S. cents.
The Bank of New Zealand Ltd. and Business New Zealand, a Wellington-based employer group, reported today that the Performance of Manufacturing Index (NZPMISA) rose in February to the highest since April 2010.
The Swiss franc climbed from a seven-week low against the dollar as the Swiss National Bank predicted the economy will expand 1 percent this year, twice as much as its previous estimate.
Policy makers led by interim Chairman Thomas Jordan, maintained their ceiling for the currency at 1.20 francs per euro, and pledged to defend the cap with their “utmost determination.” The SNB forecast that consumer prices will fall 0.6 percent this year, before inflation returns in 2013 with a rate of 0.3 percent, accelerating to 0.6 percent in 2014.
The franc rose 0.5 percent to 1.20727 per euro, and gained 0.8 percent to 92.30 centimes per dollar.
To contact the reporters on this story: Allison Bennett in New York at email@example.com; Lucy Meakin in London at firstname.lastname@example.org
To contact the editor responsible for this story: Dave Liedtka at email@example.com