Bloomberg has one of the best reads for foreign exchange news, remember to bookmark it for your daily reads if you can. Latest: Singapore dollar rises to 10 years high.
Source: Bloomberg
Oct. 1 (Bloomberg) — The yen fell to a seven-week low against the euro and the Australian dollar as a rally in Asian stocks gave traders confidence to resume buying higher-yielding investments funded by loans in Japan.
Japan’s currency dropped the most versus the New Zealand dollar, a favorite of so-called carry trades, and Asian currencies strengthened as an index of the region’s stocks rose to a record. Lehman Brothers Holdings Inc. said its yen carry- trade unwind signal fell to 19 percent this week from plus 95 percent in early August, the height of the credit-market crisis.
“Rising share prices are giving investors risk appetite, bringing about the yen carry trade,” said Mitsuru Sahara, senior currency sales manager at Bank of Tokyo-Mitsubishi UFJ Ltd. “The yen looks weak.”
The yen dropped to 164.35 per euro as of 8:46 a.m. in London, near the lowest since Aug. 9, when it rose the most since March after BNP Paribas SA, France’s biggest bank, froze three investment funds, reigniting concern the U.S. subprime mortgage crisis was spreading. It was 163.79 on Sept. 28 in New York.
Japan’s currency also fell to 115.45 against the dollar from 114.81. The yen dropped against all of the 16 most-active currencies today and may weaken to 115.30 per dollar and 164.40 a euro, Sahara forecast.
Carry-Trade Favorites
The yen also fell to a seven-week low of 102.63 against the Australian dollar and declined to 88.26 against New Zealand’s, extending a 7 percent slide last month as the Federal Reserve’s Sept. 18 interest-rate cut bolstered confidence in carry trades. Australia’s currency rose to an 18-year high against the U.S. dollar today.
The Morgan Stanley Capital International Asia-Pacific Index rose as much as 0.6 percent today, and the Nikkei 225 Stock Average added 0.4 percent after the Bank of Japan said today its quarterly Tankan index of sentiment at large manufacturers stayed at 23 points in September from June.
In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency moves erase those profits.
The dollar traded near an all-time low against the euro on speculation a U.S. report today will show factories expanded at the slowest pace in six months.
`Recessionary Phase’
The U.S. currency last month declined the most versus the euro in almost four years as traders increased bets the Fed will cut interest rates for a second time in October to revive the ailing economy.
“With a housing slump adversely affecting the whole situation, the U.S. economy will probably enter a recessionary phase in the first quarter,” said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co. “The dollar will head further south.”
Former Fed Chairman Alan Greenspan said Sept. 28 in an interview with BBC Radio 4 the slump in the U.S. housing market was the worst he had seen in his career and the chance of a U.S. recession is higher now than a few months ago.
The dollar traded at $1.4235 against the euro, down from a record low of $1.4283 and from $1.4267 on Sept. 28.
In the third quarter, the U.S. currency fell 6.8 percent against the yen, the biggest drop since the three-month period ended September 2003. It may weaken to 105 yen by year-end, Mizuno forecast.
JPMorgan Forecast
JPMorgan Chase & Co., the third-largest U.S. bank, reduced its forecast for the dollar, predicting a Federal Reserve interest-rate reduction this month will diminish the appeal of investing in the U.S. currency.
“With other major banks not keeping pace with the Fed’s active rate cuts, the interest-rate differentials are negatively working against the dollar,” Tohru Sasaki, chief strategist in Tokyo at JPMorgan Chase & Co. and a former chief currency trader at the Bank of Japan, wrote in a research note.
JPMorgan today predicted the dollar will fall to 112 yen at the end of this year, compared with a previous forecast of 116 yen. Against the euro, the dollar will drop to $1.45, weaker than an earlier forecast of $1.40, it said.
Asian currencies also gained, with Singapore’s dollar climbing to a 10-year high and South Korea’s won advancing to the strongest in two months on speculation investors will buy more emerging-market assets as the Fed keeps cutting rates, spurring demand for riskier securities.
The Singapore dollar advanced to S$1.4771, the highest since August 1997, from S$1.4857 on Sept. 28.
Two Fed Cuts
Interest-rate futures show traders expect quarter-percentage point rate cuts at the Fed’s next two monetary policy meetings on Oct. 31 and Dec. 11. They assign an 84 percent probability of a reduction this month and 62 percent odds of a move in December.
The Institute for Supply Management’s factory index fell to 52.5, a six-month low, from 52.9 in August, the Tempe, Arizona- based group may report today, according to a Bloomberg News survey. A reading greater than 50 signals expansion in manufacturing, which accounts for about 12 percent of U.S. gross domestic product.
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