No Bullshit Forex Blog, A Part of No Bullshit Network

Source: Bloomberg Currencies

Oct. 10 (Bloomberg) — The yen fell to the lowest since July against the euro as a rally in Asian stocks and waning concern about a U.S. recession prompted traders to boost holdings of higher-yielding assets funded with money borrowed in Japan.

Investors sold the Japanese currency as minutes from the Federal Reserve’s Sept. 18 meeting released yesterday allayed concern a U.S. housing slump will slow global growth. The euro rose against the dollar as industrial growth in France and Italy cut speculation the currency’s gains will be featured at the Group of Seven meeting next week.

“People are selling the yen as risk appetite is coming back,” said Michael Malpede, a senior currency analyst in Chicago at Man Global Research. “The Europeans don’t have a unified stance to put a cap on the euro’s strength.”

The yen fell 0.3 percent to 165.77 per euro at 1:13 p.m. in New York, earlier touching 166.25, the weakest since 166.32 on July 25. The Japanese currency was little changed at 117.23 per dollar, from 117.13 yesterday. It earlier dropped to as low as 117.53. The euro rose 0.3 percent to $1.4141. The European currency set a record high of $1.4283 on Oct. 1 and an all-time high of 168.99 yen on July 23.

Stock Indexes

The yen has declined against all 16 most-active currencies in the past month as stock indexes in the U.S. and Asia rallied to records. The yen has lost 5.2 percent this year against the euro as investors borrow in Japan to buy higher-yielding assets elsewhere, in a practice known as the carry trade. At 0.5 percent, Japan’s borrowing costs are the lowest among industrialized nations.

The Japanese currency trimmed its decline versus the dollar as U.S. stock indexes fell after Valero Energy Corp. and International Paper Co. said third-quarter earnings trailed analysts’ estimates. The Standard & Poor’s 500 Index dropped 0.5 percent.

Japanese exporters sold the dollar against the yen from the 117.25 level, said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York.

The Swiss franc fell to a record low of 1.6729 per euro after central bank President Jean-Pierre Roth signaled he has no plans to raise Switzerland’s benchmark interest rate from 2.75 percent for now.

Euro’s Rally

The euro gained against 13 of 16 major currencies today as signs of growth in the euro region allayed concern that its 7.1 percent rally this year versus the dollar will hurt growth, dimming speculation its strength will be mentioned at the G-7 meeting in Washington starting Oct. 19.

French production advanced 0.3 percent in August from the previous month and Italian output rose 1.3 percent, the biggest increase in eight months, two government reports said today.

Officials from the 13-country euro region failed to find a common position on the currency on Oct. 8 as they prepare for the G-7 meeting. While French President Nicolas Sarkozy has said the appreciation is hurting European exports, German Finance Minister Peer Steinbrueck said two days ago, “I prefer a strong euro.”

French central bank governor Christian Noyer said at a conference in Riga, Latvia, today the euro’s gains show investors are confident in the region’s economic prospects.

“The economy in the euro zone is still holding up very well, despite a strong euro,” said Christian Dupont, a senior currency trader at Societe Generale SA in Montreal. “Some people are betting that the G-7 meeting won’t try to talk down the euro against the dollar.”

Bank of Japan Governor Toshihiko Fukui and his colleagues will leave the overnight lending rate unchanged at the conclusion of a two-day meeting starting today, according to economists in a Bloomberg News survey.

Dollar-Yen Volatility

One-month implied volatility for the yen versus the dollar fell to 7.91 percent today, the lowest since July 25, from 8.15 percent yesterday. Dealers quote implied volatility, a gauge of expectations for currency moves, as part of pricing options. Lower volatility may encourage carry trades as it implies less risk from swings in foreign exchange.

Morgan Stanley’s index of Asian equities climbed to a record for a second day. The Dow Jones Industrial Average and S&P 500 Index climbed to records yesterday after minutes from the Fed’s meeting showed policy makers refrained from language that may have heightened concern the U.S. economy will contract.

The Fed cut its benchmark interest rate to 4.75 percent from 5.25 percent at the meeting. Futures contracts traded on the Chicago Board of Trade indicate a 36 percent chance the central bank will cut its benchmark rate a quarter-percentage point at its meeting on Oct. 31, compared with 70 percent odds a week ago.

The U.S. currency will fall to a record $1.46 per euro by year-end, compared with a forecast of $1.43 in June, said Ian Stannard, senior currency strategist at BNP Paribas SA.

The pound rose 0.3 percent to $2.0426 after Bank of England Governor Mervyn King pledged today to fight inflation.

Popularity: 13% [?]

Share This