Bloomberg News

Yen Weakens as Risk Appetite Increases; Russian Currency Climbs

March 17, 2014

Japanese 10,000 Yen Notes

The yen, regarded along with gold as a haven investment, climbed against all 16 major currencies tracked by Bloomberg last week. Photographer: Tomohiro Ohsumi/Bloomberg

The yen weakened for the first time in six days against the dollar as rallies in Russian stocks and the ruble damped concern that Crimea’s vote to leave Ukraine would immediately lead to further turmoil in the region.

China’s yuan slid to an 11-month low versus the dollar after the central bank widened its trading band. The euro erased losses against the dollar as the European Union and the U.S. imposed sanctions on individuals in Russia amid the standoff over Ukraine. U.S. stocks rose as a report showed American factory production climbed last month the most since August.

“There doesn’t seem to be any big escalation between Ukraine, the West, and Russia; it’s a pretty risk-on day,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc., said in a phone interview. “There was so much negativity priced in last week, it’s a relief so far. A lot of investors were expecting things would be way worse.”

The yen fell versus 15 of its 16 major peers, weakening 0.4 percent to 101.77 per dollar at 5 p.m. New York time after strengthening 1.9 percent last week. Japan’s currency dropped 0.5 percent to 141.68 per euro. Europe’s 18-nation currency appreciated less than 0.1 percent to $1.3922 after dropping 0.3 percent earlier.

The JPMorgan G7 Volatility Index dropped 13 basis points, or 0.13 percentage point, to 7.47 percent after climbing 25 basis points last week. The average this year is 7.88 percent.

Ruble Gains

Russia’s ruble rose versus all of 31 major counterparts as the Micex (INDEXCF) index of Russian stocks climbed 3.7 percent after slumping 7.6 percent last week. The currency strengthened 0.8 percent to 42.7310 against the central bank’s target basket of dollars and euros.

The currency “market seems to be very calm,” David Bloom, head of global currency strategy at HSBC Holdings Plc in London, said in an interview on Bloomberg Television’s “The Pulse,” with Francine Lacqua and Guy Johnson. “The market is not joining the dots and saying there’s a global problem. The market’s saying these are local isolated problems.”

The EU imposed “targeted sanctions against responsible Russians,” Danish Foreign Minister Martin Lidegaard said in a Twitter post after a meeting with his peers from the rest of the 28-nation bloc in Brussels. The measures include travel-visa bans and asset freezes, an EU official said. President Barack Obama ordered U.S. sanctions on seven Russian government officials.

Crimean lawmakers set in motion measures for the Black Sea peninsula to leave Ukraine and join Russia after yesterday’s plebiscite, which EU and U.S. leaders have condemned as illegal. Russia has deployed about 60,000 troops along the Ukrainian border, the government in Kiev said.

‘Relief Rally’

“It’s a bit of a relief rally -- some of that is the fact the situation didn’t escalate,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, said in a telephone interview. “Right now the ball is really in the West’s court again.”

The yuan fell for a second day after the People’s Bank of China said on March 15 the currency will be able to trade as much as 2 percent on either side of a daily central bank reference rate, from 1 percent previously.

The decision underscores pledges from China’s leaders to make the exchange rate more market-based and promote freer movement of capital for investment purposes.

The onshore spot rate declined 0.5 percent to close at 6.1781 per dollar after declining to 6.1818, the weakest level since April.

Aussie, Rand

Australia’s dollar and the Swedish krona led gains among the dollar’s 16 most-traded counterparts, advancing 0.7 percent and 0.6 percent. Wespac Banking Corp. dropped its forecast for further Australian interest-rate cuts this year, increasing the appeal of Aussie assets.

South Africa’s rand was the biggest loser, dropping 1 percent to 10.7751 per dollar before a report on March 19 forecast to show core consumer prices rose 5.3 percent last month from a year earlier, unchanged from January.

The dollar stayed higher against the yen as Federal Reserve data showed U.S. factory production rose 0.8 percent in February after a 0.9 percent slump the prior month. An index of manufacturing in the New York region rose to 5.61 this month, from 4.48 in February, the Fed Bank of New York reported.

The Standard & Poor’s 500 Index of stocks rose 1 percent.

Treasury Yields

The yen weakened as yields on U.S. Treasury 10-year notes climbed, increasing the appeal of dollar-denominated assets. The yields rose four basis points to 2.69 percent after falling 13 basis points last week, the biggest drop in two months. Yields on Japanese government 10-year bonds traded little changed at 0.62 percent.

Fed policy makers open a two-day meeting tomorrow.

The yen also fell as Royal Bank of Scotland Group Plc said the Bank of Japan may be embarking on dovish rhetoric, helping to cap gains in the currency.

BOJ Governor Haruhiko Kuroda said the central bank will adjust monetary policy without hesitation if it foresees a situation where achieving its inflation target would be difficult, the Asahi newspaper reported on March 15, citing an interview. He reiterated the pledge today in parliament.

The Japanese (GJGB10) currency has gained 2.7 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar fell 1.2 percent, while the euro strengthened 0.3 percent.

To contact the reporter on this story: Andrea Wong in New York at awong268@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Greg Storey, Paul Cox


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