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Dollar, Euro, Pound & Yen

00:56 Tuesday 2 June, 2010

The yen may become the funding currency of choice in the coming year as deflation concerns keep local interest rates low and Japanese investors reduce hedges on foreign bond portfolios, BNP Paribas SA said.

The Japanese yen will drop 21 percent to 110 per dollar by mid 2011 as local investors reduce hedges on $2.9 billion of foreign portfolios once global yield curves start to flatten, analysts led by Hans-Guenter Redeker, global head of foreign- exchange strategy, wrote in a note sent to Bloomberg today. The yield of benchmark Japanese bonds will fall compared with many foreign notes in the coming year, increasing the attractiveness of those markets to local investors, they said.

“An environment of global growth together with continued ample liquidity will provide favorable conditions for the carry trade, bringing the yen’s role as a funding currency to the fore,” the London-based Redeker said. “Japan will still struggle to escape the grip of deflation, suggesting that it will not be in a position to allow rates or yields to rise for a long time to come.”

00:47 Wednesday 2 June, 2010

Bank of Tokyo-Mitsubishi UFJ Ltd. cut its forecast for the euro to $1.16 by the fourth quarter, which would be the lowest level since November 2003.

The bank’s estimate a month ago was $1.22, according to a report released yesterday. It also lowered its fourth-quarter euro forecast against the Japanese currency to 103 yen, the lowest since June 2001, from 116 yen a month ago.

While a decline in the 16-nation currency may stall in the near term, “we maintain our forecast that the euro will weaken over the medium to long term,” Kikuko Takeda, a London-based senior currency economist at the unit of Japan’s largest banking group, said in the report. The euro area is “at the brink of a genuine crisis,” Takeda said.

The euro traded at $1.2279 and 111.98 yen as of 2:10 p.m. in Tokyo. The common currency weakened to a four-year low of $1.2144 on May 19. Against the Japanese currency, the euro slid to 108.84 yen on May 25, the lowest level since November 2001.

23:05 Tuesday 1 June, 2010

Wall Street’s foreign-exchange strategists say central bankers are showing growing reluctance toward holding euros as Europe’s debt crisis undermines confidence in the region’s single currency.

The euro weakened 2.4 percent against the dollar last week even after China’s State Administration of Foreign Exchange, which manages the country’s $2.4 trillion of reserves, denied speculation that it was diversifying away from European bonds. The 20 percent depreciation from last year’s peak in November has demonstrated the limits of the euro as a reserve currency to rival the dollar as well as the European Central Bank’s ability to defend its legal tender.

A net 105 billion euros ($129 billion) flowed out of the region’s fixed-income markets on an annualized basis in the first three months of the year, signaling a “broad shift” in appetite for euro-denominated assets, according to Nomura Holdings Inc. The region attracted a net 225 billion euros from foreign debt investors in 2009.

“It’s clearly the case that there’s been an element of foreign central banks slowing down their euro purchases,” said Jens Nordvig, a managing director for foreign-exchange research at Nomura in New York. “The institutional framework is being questioned, the credibility of the ECB is being questioned, and all that uncertainty is really fueling an asset allocation shift away from the euro zone.”

23:02 Tuesday 1 June, 2010

The Australian dollar weakened for a third day after the nation’s central bank left interest rates unchanged and China’s manufacturing expanded at a slower pace in May, damping demand for the South Pacific nation’s assets.

New Zealand’s currency declined on speculation efforts to reduce budget deficits in Europe will slow the region’s growth and after Germany’s president unexpectedly quit, adding to pressures on German Chancellor Angela Merkel. Reserve Bank of Australia Governor Glenn Stevens said monetary policy was “appropriate for the near term” and kept the overnight cash rate target at 4.5 percent today.

“The RBA acknowledges that there’s been a little more uncertainty created by events in Europe,” said David Forrester, a currency economist at Barclays Capital in Singapore. Germany’s “political uncertainty is bad for the euro and bad for risky assets in general in the near term as it increases the uncertainty around potential future policy action.”

Australia’s currency fell to 83.89 U.S. cents as of 4:37 p.m. in Sydney from 84.59 cents in New York yesterday and 83.65 cents before the central bank’s decision. The currency declined 0.9 percent to 76.53 yen.

22:58 Tuesday 1 June, 2010

The euro fell to a four-year low against the dollar as unemployment in nations using the currency rose to the highest since before it was created, sapping confidence the economy can withstand the region’s debt crisis.

The longest stretch of monthly decreases in 10 years has erased 50 percent of the euro’s rally from its October 2000 low to the July 2008 high. Canada’s dollar rose against 12 of its 16 most-traded counterparts today as the central bank became the first Group of Seven country to boost borrowing costs since last year’s recession. Europe’s currency pared its drop as stocks reduced their losses.

“There was a series of negative hits on the euro,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “I don’t think there’s a euro bull anywhere. People are trying to look more and more where their funding should be, and I think the euro is confirming itself more and more as being an ideal funding currency.”

The euro fell as much as 1.6 percent to $1.2111, the lowest level since April 14, 2006, before trading at $1.2187 at 9:07 a.m. in New York, compared with $1.2306 yesterday. It declined 1.3 percent to 110.84 yen, from 112.31 yen. Japan’s currency strengthened 0.3 percent to 90.95 per dollar, from 91.26.

14:25 Tuesday 1 June, 2010

South Korea’s won declined for a second day after overseas investors sold 6.1 trillion won ($5.1 billion) more of the nation’s stocks than they bought in May, the biggest net sales in any month since January 2008.

Policy makers should wait for second-quarter economic data before raising interest rates as Europe’s sovereign debt crisis may delay some nations’ exit strategies, the Maeil Business Newspaper said yesterday, citing an interview with Finance Minister Yoon Jeung Hyun. Foreign investors bought 3.5 trillion more of Korean bonds than they sold last month even as they trimmed their holdings of the nation’s equities, the Financial Supervisory Service said yesterday.

“Too many fingers have been burnt in the $5 billion pulled out of Korean equities last month, so I don’t see foreign investors rushing back in,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “That’ll work against Korean equities and against the won, which is one of the most sensitive currencies to global sentiment.”

The won slid 0.2 percent to 1,204.3 per dollar as of 10:23 a.m. in Seoul, following last month’s 7.9 percent decline. Callow said he expects the currency to weaken to 1,280 by the end of this month.

South Korea’s exports increased 41.9 percent in May from a year earlier, the Ministry of Knowledge Economy said today. The median of 11 estimates in a Bloomberg News survey was for a 41.2 percent gain. The trade surplus widened to $4.4 billion from a revised $4.1 billion in April.

“Korea’s trade surplus is impressive, it’s certainly a positive for the recovery,” said Westpac’s Callow. “But Korean officials are talking about their concerns about Europe down the track, it’s obviously something that’s bothering them.”

11:20 Tuesday 1 June, 2010

The dollar may retreat to 90 yen as a key resistance level stems its advance, according to Gaitame.com Research Institute Ltd., a unit of Japan’s largest foreign-exchange margin company.

The 20-day moving average has capped the U.S. currency’s upward momentum, suggesting it may drop, said Kumiko Gervaise, a foreign-exchange analyst at Gaitame.com in Tokyo. The dollar traded at 91.17 yen at 8:33 a.m. in Tokyo, from 91.26 yesterday in New York. It was last below 90 yen on May 27. The 20-day moving average is at 91.58 yen.

“The currency may try the 200-day moving average near 91 yen,” Gervaise said. “Should it dip below that level, it may go back to 90 yen quickly.”

Should the U.S. currency break the 20-day moving average, it may switch to an uptrend and try to rise toward the 60-day moving average at 92.30 yen, Gervaise said. Resistance refers to an area where sell orders may be clustered.

09:17 Tuesday 1 June, 2010

The euro weakened against 14 of its 16 major counterparts, extending its longest monthly decline against the dollar in 10 years, on concerns Europe’s efforts to reduce budget deficits will derail the region’s economies.

The 16-nation currency fell for a second day against the British pound before a report forecast to show unemployment increased in Italy and after an index of executive and consumer sentiment in the nations sharing the euro tumbled. The Canadian dollar rose for a second day against the greenback on prospects the nation’s central bank will increase the policy rate today.

“As fiscal consolidations in countries such as Greece, Spain and Portugal take their toll on the region’s economy, the euro will struggle,” said Daisaku Ueno, president at Gaitame.Com Research Institute Ltd., a unit of Japan’s largest currency margin company. “Panicky, violent selling of the currency on sovereign-debt concerns has subsided, on the other hand.”

The euro fell to $1.2286 from $1.2306 as of 8:16 a.m. in Tokyo from $1.2306 yesterday in New York. The currency slid to 84.58 pence from 84.65. It changed hands at 112.05 yen from 112.31 yen in New York.

07:56 Tuesday 1 June, 2010

The yen traded near the weakest level in more than a week against the dollar as gains in stocks spurred demand for higher-yielding assets and after Japan’s Social Democratic Party left a three-way coalition government.

The Japanese currency, which rose against all 16 most- traded peers this month as Europe’s credit crisis drove investors to the safest assets, declined earlier today after a poll showed more than half the nation’s voters want Prime Minister Yukio Hatoyama to resign. The euro headed for its biggest monthly drop since January 2009. The Canadian dollar advanced as a report showed the country’s economy expanded at the fastest pace in a decade during the first quarter.

“With the rebound in risk appetite people have been very quick to put on new trades against the yen,” said David Deddouche, a currency strategist at Societe Generale SA in Paris. In the past month “the markets moved very sharply so it’s only natural that we’ll see some consolidation.”

The yen fell as much as 0.6 percent to 91.62 per dollar, the weakest level since May 20, before trading at 91.18 at 4:11 p.m. in New York from 91.06 on May 28. The Japanese currency traded at 112.19 per euro from 111.77 last week. The 16-nation common currency gained 0.2 percent to $1.2303, from $1.2273.

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