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Dollar, Euro, Pound & Yen

00:51 Friday 4 June, 2010

The pound rose against the euro, trading near its strongest level in 18 months, as a report showing U.K. house prices climbed to the highest in almost two years fueled optimism the economic recovery is solidifying.

Sterling also strengthened earlier to within a cent of three-week high against the dollar. Ten-year gilts fell, snapping three days of gains, as a rally in equities sapped demand for the perceived safety of fixed income and the government sold 2 billion pounds ($2.9 billion) of securities maturing in 2034.

“We’re having a good day for risk,” Elsa Lignos, a currency strategist at Royal Bank of Canada in London, said by telephone. “The data shows signs for a weak recovery, but it’s still early days.”

The pound gained 0.2 percent to 83.45 pence per euro as of 4:21 p.m. in London after advancing to 82.80 yesterday, the strongest level since Dec. 1, 2008. Against the dollar, it was 0.2 percent weaker at $1.4619. It reached $1.4771 yesterday, the strongest level since May 13.

Nationwide Building Society said today that the average cost of a home increased 0.5 percent in May to the highest level since July 2008. The report added to evidence the housing market is recovering after values dropped by about 20 percent during the recession.

00:47 Friday 4 June, 2010

The euro’s level is in line with the region’s economic condition and European sovereign risk may have a limited impact on the global economy, said Takatoshi Kato, a former Japanese top currency official.

“The current level of the euro isn’t largely apart from the economy’s medium-term fundamentals,” Kato, 69, who also used to be deputy managing director of the International Monetary Fund, said in an interview yesterday in Tokyo.

Finance ministers and central bankers from the Group of 20 nations will meet this week in Busan, South Korea. They may discuss the effect of the European debt crisis on currencies, Japanese Finance Minister Naoto Kan, who plans to run to replace Prime Minister Yukio Hatoyama, said last week. Hatoyama resigned yesterday.

Concern that Europe’s efforts to cut budget deficits will hamper the region’s recovery sent the euro to a four-year low against the dollar earlier this week. IMF First Deputy Director John Lipsky said last month that the euro’s level -- then around 1.24 against the dollar -- was close to an “equilibrium” value and its decline may help European exporters.

The euro traded at 1.2286 per dollar at 12:13 p.m. in Tokyo. The 16-member currency slid to 1.2111 on June 1, the weakest since April 2006.

“The weight of regional trade is overwhelmingly high in the euro area,” Kato said. “Even if the euro fluctuates against the dollar and the yen, it may not largely affect” the area’s economy, he said.

00:41 Friday 4 June, 2010

The rate banks say they pay for three-month loans in dollars rose for a second day amid lingering concern about the quality of bonds held by lenders amid the European debt crisis.

The London interbank offered rate, or Libor, for such loans rose to 0.53781 percent today from 0.5375 percent yesterday, according to data from the British Bankers’ Association. It reached 0.53844 percent on May 27, the highest level since July 6, on concern that banks owned too many bonds from Europe’s most indebted nations.

“Libor’s edging higher, and today’s increase is marginal,” said Orlando Green, an interest-rate strategist at Credit Agricole Corporate & Investment Bank in London. “The dollar funding concern for European banks has diminished, but there’s still some underlying concern over the health of the banking sector. There are still some problems in the system.”

Libor has more than doubled this year as the sovereign-debt crisis in Europe heightened concern that bank creditworthiness was deteriorating, making financial firms more wary about lending to potentially risky counterparties.

The European Central Bank said on May 31 that banks will have to write off more loans this year than in 2009 and their ability to sell bonds may be hampered as governments seek to finance fiscal deficits.

00:39 Friday 4 June, 2010

Investors should sell the euro against the Canadian dollar, betting the 16-nation currency may depreciate to C$1.2230, Standard Bank Plc said.

Standard Bank also recommended in a report today that traders should buy the New Zealand dollar against its U.S. counterpart, expecting it to rise to 70.60 U.S. cents.

The euro was little changed at C$1.2723 as of 10:02 a.m. in London. New Zealand’s dollar appreciated 1.2 percent to 68.99 U.S. cents.

00:36 Friday 4 June, 2010

Sovereign wealth funds may consider shifting some of their investments in euro-denominated assets into emerging-market countries, said Goldman Sachs Asset Management’s Sam Finkelstein.

“They’re probably now questioning some of their holdings of European countries and the fate of the euro as a reserve currency,” Finkelstein, head of emerging-market debt at Goldman Sachs Asset Management, said at a LatinFinance conference in London today. “My guess is maybe sovereign wealth funds outside of Latin America are actually pondering investments into a number of emerging-market countries given the strength of their balance sheets.”

00:34 Friday 4 June, 2010

Reserve Bank of New Zealand Governor Alan Bollard’s desire for a weaker currency is running into resistance from some of the world’s biggest bond investors.

Kokusai Asset Management Co. and Loomis Sayles & Co. expect Chinese demand for New Zealand’s milk and wool to spur economic growth, leading Bollard to raise interest rates from a record low and helping the so-called kiwi rebound from its steepest drop in a year. Derivatives indicate borrowing costs will rise at least 1.5 percentage points within 12 months, about half a percentage point more than any other Group of 10 nation.

“New Zealand will benefit from the Chinese recovery,” said Masataka Horii, who helps oversee the equivalent of $54.5 billion including Asia’s biggest bond fund at Kokusai in Tokyo. “Their economy is getting better. Overseas bondholders will be able to profit from currency appreciation.”

A stronger kiwi may be the last thing Bollard wants as he tries to steer the nation’s $131 billion economy while a spreading debt crisis in Europe threatens to slow global economic growth. New Zealand’s dollar has climbed 40 percent against its U.S. counterpart from last year’s low in March, 42 percent versus the euro and 32 percent relative to the yen.

“A gradual depreciation of the New Zealand dollar remains desirable for a sustainable rebalancing of the New Zealand economy, as it would boost export returns and discourage household spending on imports,” Bollard said in the central bank’s Financial Stability Report on May 19.

00:19 Friday 4 June, 2010

Naoto Kan, the front-runner to become Japan’s prime minister, has begun leading a drive to contain the world’s largest public debt just months after warning it would be a “challenge” to maintain fiscal discipline this year.

Kan’s change reflects his deepening anxiety over the budget deficit after participating in meetings of Group of 20 and G-7 that were dominated by Europe’s debt crisis, a Finance Ministry official said on condition of anonymity. Kan, 63, surprised ministry officials and Prime Minister Yukio Hatoyama last month by extending a pledge to cap bond sales through next year.

The impact of Kan’s shift on policymaking may be magnified should he succeed Hatoyama, who announced his resignation yesterday after deepening tensions over the U.S. military’s presence in Okinawa. Kan would seek to distinguish himself from the previous four leaders since 2006 by pushing for more fiscal discipline and a higher sales tax, according to Barclays Capital.

“People used to think Kan was very much inclined to economic stimulus measures when he became the finance minister,” said Kazuhiko Sano, chief strategist in Tokyo at Citigroup Global Markets Japan Inc., who predicts Kan will be selected as prime minister. “He’s been changing his tone and stance toward fiscal discipline” after sovereign-debt risks climbed, he said.

Hatoyama, 63, is quitting after less than nine months in office as campaign finance scandals and indecision over where to move a U.S. military base sent the Cabinet’s approval rating down to around 20 percent in public opinion polls.

09:32 Thursday 3 June, 2010

The yen traded near the weakest level in more than two weeks as political uncertainty in Japan and signs the U.S. economy is gaining traction tilted demand toward dollar-denominated assets.

The greenback rose against most major counterparts before reports forecast to show U.S. companies boosted payrolls while initial jobless claims fell. The yen slid on speculation Japan’s next leader will seek a weaker currency after Prime Minister Yukio Hatoyama’s resignation yesterday. U.S. stocks rose, with benchmark indexes rebounding from near three-month lows.

“U.S. economic data continue to show solid improvement and financial markets there are doing relatively well,” said Hiroshi Yanagisawa, a Tokyo-based dealer at FX Prime Corp., a foreign-exchange unit of Japanese trading house Itochu Corp. “Global money managers are more inclined to shift their money to the U.S.”

The Japanese currency was at 92.17 yen as of 8:20 a.m. in Tokyo from 92.13 in New York yesterday when it touched 92.36, the weakest level since May 18. The yen was at 112.74 per euro from 112.84 yesterday. The euro changed hands at $1.2231 from $1.2249 yesterday. It touched $1.2111 on June 1, the lowest level since April 2006.

08:17 Thursday 3 June, 2010

Canada’s dollar advanced to the strongest level in more than two weeks versus the greenback as gains in stocks and crude oil, the nation’s largest export, spurred demand for assets linked to economic growth.

The Canadian currency, known as the loonie, gained against all of its most-traded counterparts as U.S. equity benchmark indexes rebounded amid speculation yesterday’s drop in energy shares overshot risks from the Gulf of Mexico oil spill.

“The roaring loonie,” said Matthew Strauss, senior currency strategist at Royal Bank of Canada in Toronto. “We saw risk appetite starting to come back last night and gaining momentum during the U.S. equity trading session. Oil’s up by more than a dollar again. That’s the more important reason for the strength of the Canadian dollar.”

The Canadian currency appreciated 1.6 percent to C$1.0388 per U.S. dollar at 4:08 p.m. in Toronto, compared with C$1.0554 yesterday. It touched $1.0372, the strongest level on an intraday basis since May 18. One Canadian dollar buys 96.27 U.S. cents.

08:13 Thursday 3 June, 2010

Further decline in the yen following the resignation of Japan’s Prime Minister Yukio Hatoyama may be limited, implied volatility from options trading monitored by Bloomberg show.

The likelihood the currency will weaken to 100 against the dollar in a month was 3.4 percent at 2 p.m. in New York. The odds increased to 22 percent for a three-month period and 42 percent by year-end.

Japan’s currency dropped today as much as 1.5 percent to 92.36 versus the dollar in the biggest intraday decrease since May 10 on speculation Hatoyama’s successor will pursue policies that weaken Japan’s currency. Finance Minister Naoto Kan has called for the Bank of Japan to do more to fight deflation.

“You get the feeling the last few months a lot of the bears have thrown in the towel,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said in a telephone interview. “There’s a huge amount of negativity around the currency year after year.” He maintains that the yen will weaken to 100 as soon as this month.

The yen will decline to 100 by the end of the first quarter of 2011, according to median forecast of 39 economists in a Bloomberg News survey. Japan’s currency last traded at that level in April 2009.

08:10 Thursday 3 June, 2010

The yen dropped the most versus the dollar in more than three weeks after Prime Minister Yukio Hatoyama resigned, fueling concern Japan’s new leadership will pursue policies that may weaken it.

The Japanese currency fell against most major counterparts on speculation Hatoyama will be succeeded by Finance Minister Naoto Kan, who has called for the Bank of Japan to do more to fight deflation. Higher-yielding currencies including New Zealand’s dollar and Brazil’s real rose. The euro was near a four-year low versus the greenback on concern Europe’s efforts to cut budget deficits will hamper its economic revival.

“The likely new prime minister will put pressure on the BOJ to do more easing while everyone else is doing the reverse,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “The yen is dropping on its own merits, and that’s encouraging risk-taking.”

Japan’s currency depreciated 1.3 percent to 92.13 yen per dollar at 5 p.m. in New York, from 90.94 yesterday. It slid as much as 1.6 percent, the most on an intraday basis since May 10, and touched 92.36, the weakest level since May 18.

The yen fell 1.5 percent to 112.84 per euro, from 111.22. The euro rose 0.2 percent to $1.2249, from $1.2229 yesterday, when it touched $1.2111, the lowest level since April 2006.

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