Yen Slides to 7-Month Low on U.S. Growth Outlook; Pound Weakens
2012-02-22 14:27:24.635 GMT
By Keith Jenkins and Allison Bennett
Feb. 22 (Bloomberg) -- The yen weakened to a seven-month low against the dollar amid speculation U.S. growth is gathering strength, damping demand for the Asian nation’s currency.
The yen slid for a fifth day versus the greenback as the extra yield offered by two-year Treasuries over similar-maturity Japanese bonds increased to a six-month high. The pound weakened after Bank of England minutes showed two policy makers voted for a larger increase in asset purchases than the amount finally agreed. The Australian dollar declined after Foreign Minister Kevin Rudd resigned, potentially paving the way for a leadership battle.
“It’s a combination of more easing from the Bank of Japan and a better outlook in the U.S.,” said Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York.
“We have seen the U.S. two-year yield gradually increasing over the past few weeks and that has been helping the move in dollar- yen.”
The yen dropped 0.6 percent to 80.22 per dollar at 9:25 a.m. New York time, after falling to 80.38, the weakest level since July 12. Japan’s currency slid 0.6 percent to 106.16 per euro, after sliding to 106.33 yen, the lowest since Nov. 14. The euro was little changed at $1.3235.
The spread between U.S. and Japanese two-year notes expanded to 19.05 basis points yesterday, the most since Aug. 1, according to closing-market data compiled by Bloomberg. The difference was 18.6 basis points today.
The Bank of Japan on Feb. 14 unexpectedly expanded its asset-purchase program to 30 trillion yen ($374 billion) from 20 trillion, with 19 trillion yen set aside for government bonds.
The central bank also said it will target 1 percent inflation “for the time being.” Consumer prices fell at a 0.2 percent annual rate in December, government data show.
BOJ Governor Masaaki Shirakawa told Japanese lawmakers today that policy makers set a price target to show the central bank’s resolve and it will take further steps to end deflation.
“With the U.S. economy rehabilitating, the trend in yields is up and there may be more upside” to the dollar against the yen, said Lauren Rosborough, a senior foreign-exchange strategist at Societe Generale SA in London. “When domestic investors in Japan can see an improving yield offshore, then they would be looking to sell out of yen and buy the dollar.”
The Dollar Index, which tracks the U.S. currency against those of six major trading partners, climbed 0.2 percent to
79.263 after dropping 0.4 percent in the previous two days.
Sales of previously owned homes in the U.S. rose 1.1 percent in January to a 4.66 million annual rate, the highest level since May 2010, according to a Bloomberg News survey before the National Association of Realtors’ report today.
UBS AG raised its forecasts for the dollar versus the yen, according to an e-mailed report.
“We now target a move to 85 by the end of this year and 90 by the end of 2013,” analysts including Mansoor Mohi-uddin in Singapore wrote in the note. Previous projections were 80 yen and 85 yen respectively, according to the report.
The median estimate of 49 strategists is 80 yen for the fourth quarter of 2012. The forecast has been stable since Oct.
The yen has depreciated 6.6 percent in the past three months, the biggest decline among 10 developed nation peers tracked by Bloomberg Correlation Weighted Indexes. The dollar weakened 2.2 percent, and the euro dropped 4.4 percent.
Fitch Cuts Greece
The euro held gains against the yen after Fitch Ratings cut Greece’s credit rating to C from CCC. A default by the nation is likely in the near term, the ratings company said in a statement today.
The 17-nation currency has strengthened over the past week after European Union finance ministers awarded 130 billion euros
($172 billion) in aid to Greece and reached an accord for greater debt relief from investor representatives.
Sterling fell versus all of its 16 major peers and gilts gained as the minutes revealed Adam Posen and David Miles wanted a 75 billion-pound ($117.8 billion) boost in quantitative easing, instead of the 50 billion pounds supported by the other seven policy makers.
“The minutes are a dovish surprise,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd.
in London. “The market was moving to reduce the scope for further quantitative easing, which was supporting the pound, and that’s now being seen as incorrect because two members voted for bigger bond purchases. We see further downside for the pound.”
Sterling declined 0.7 percent to 84.50 pence per euro after falling to 84.51 pence, the weakest level since Dec. 13. The U.K. currency slid 0.8 percent to $1.5657.
Australia’s dollar fell 0.4 percent to $1.0618.
Rudd, the former prime minister who was ousted by Gillard as leader in 2010, announced during a trip to Washington that he was quitting as foreign minister. His resignation follows speculation about a challenge for the leadership of the governing Labor Party and opens the door for Rudd to contest the post of prime minister again.
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