Bloomberg News

Yen Weakens on Prospects for Stimulus by Central Banks

July 03, 2012

The yen weakened most of its major counterparts as investors sought higher-yielding assets amid speculation central banks will step up efforts to spur growth, reducing demand for havens.

The Dollar Index fluctuated before jobs data this week that lenders such as Bank of Tokyo-Mitsubishi UFJ Ltd. said may add to the case for more stimulus by the Federal Reserve. The European Central Bank will cut its key interest rate to a record low, a Bloomberg News survey forecast. South Africa’s rand climbed to a seven-week high as risk appetite grew, while Brazil’s real tumbled as the nation’s industrial output fell.

“They’re expecting the ECB to cut rates, and they’re expecting the Bank of England to announce more quantitative easing,” or large-scale asset purchases, Adrian Schmidt, a foreign-exchange strategist at Lloyds Banking Group Plc in London, said in a phone interview. “The inclination is maybe it’s worth trying to put some risk on.”

Japan’s currency weakened 0.7 percent to 100.72 per euro at 11:57 a.m. New York time. The yen slid 0.4 percent to 79.79 per dollar. The greenback fell 0.4 percent against the 17-nation currency to $1.2622.

The rand extended gains and the euro advanced after Commerce Department data showed orders placed with U.S. factories rose 0.7 percent in May, the first increase in three months. The median forecast of economists in a Bloomberg News survey called for a 0.1 percent advance. Stocks rose, with the Standard & Poor’s 500 Index gaining 0.6 percent.

ECB, Fed

The ECB and BOE will announce policy decisions on July 5. ECB officials will lower their main interest rate by a quarter- percentage point to 0.75 percent on July 5, economists in a Bloomberg survey forecast. Weak employment figures in the U.S. may prompt the Fed to initiate fresh stimulus, BNP Paribas SA said. Labor Department nonfarm payrolls data are due July 6.

“We’re looking for further dollar weakness, and a lot of it has to do with the market starting to price in quantitative easing,” Mary Nicola, a currency strategist at BNP Paribas SA in New York, said in a telephone interview. “It’s all going to be data dependent. Nonfarm payroll on Friday is going to be key.”

The South African rand reached its strongest level since May 11 versus the greenback as speculation central banks will ease monetary policy boosted demand for commodities that account for almost half of the nation’s exports. The currency gained 1 percent to 8.0750 per dollar and touched 8.0619.

Canada’s Dollar

The Canadian dollar advanced against most of its major counterparts as crude oil, the nation’s largest export, rose to the strongest level against the U.S. currency since May 17. It climbed as much as 0.5 percent to C$1.0121.

Crude for August delivery rose to as high as $88.04 a barrel in New York, the highest since May 31.

Brazil’s real tumbled amid speculation the country’s central bank will deepen interest-rate cuts after a report showed industrial production fell more than forecast. The currency dropped 0.7 percent to 1.9987 per dollar. It rallied yesterday as much as 1.2 percent after the central bank supported it with currency-swap auctions three times last week.

U.S. payrolls added 90,000 workers last month after gaining 69,000 in May, a Bloomberg survey forecast before the Labor Department data this week. May’s increase was less than half the 150,000-job gain that economists had forecast, and the unemployment rate rose to 8.2 percent, from 8.1 percent.

Fed Purchases

The Fed bought $2.3 trillion of bonds from December 2008 to June 2011 in its first two rounds of quantitative easing, seeking to reduce the unemployment rate, which has stayed above 8 percent since February 2009. It will increase asset purchases in September, according to Bank of America Corp., one of the 21 primary dealers that trade directly with the Fed.

“With a 90,000 increase in nonfarm payrolls, the unemployment rate will rise,” said Noriaki Murao, managing director in New York at Bank of Tokyo-Mitsubishi UFJ. “The U.S labor market is flashing a red light, with the prospects of QE3 rising.”

The U.S. currency may face resistance at its June high of 80.62 yen, according to data compiled by Bloomberg. Resistance refers to an area on a price graph where analysts anticipate orders to sell a security to be clustered.

Dollar Index

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, fell 0.2 percent to 81.724 after rising as much as 0.2 percent.

The greenback fell 2.9 percent over the past month against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes. The yen was the worst performer, with a 5.2 percent decline, while the Aussie gained 3.7 percent.

Australia’s dollar touched a two-month high today versus the greenback as data showed the nation’s home building approvals surged in May, adding to signs that the economy is gaining momentum. It pared gains after the Reserve Bank of Australia kept interest rates unchanged and said a subdued international outlook meant the stance of monetary policy remains appropriate.

The Aussie rose 0.4 percent to $1.0289 and touched $1.0291, the highest level since May 3.

The pound weakened against a majority of its most-traded peers after an index showed U.K. construction contracted in June. The Bank of England’s Monetary Policy Committee will raise its target for bond purchases by 50 billion pounds ($79 billion) to 375 billion pounds on July 5, a Bloomberg survey forecast.

Sterling fell 0.3 percent to 80.36 pence per euro and was little changed at $1.5676.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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


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