Yen, Dollar Drop as Signs of Global Recovery Buoy Risk Demand

The yen strengthened to an eight- month high against the dollar as concern that the U.S. may require additional stimulus measures to boost its economic recovery damped investor appetite for the greenback.

Japan’s currency rose against all of its 16 most-traded peers as reports showed U.S. factory orders and existing-home sales fell in June while consumer spending stagnated. Stocks declined. The Dollar Index dropped for a fifth straight day, and the pound rose to a six-month high versus its U.S. counterpart.

“You’ve got the stock market down, weak economic data -- people are taking risk off,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “You’ve got a green light to buy the yen.”

Japan’s currency gained 0.8 percent to 85.79 per dollar at 5 p.m. in New York, from 86.50 yesterday. It touched 85.68, the strongest level since Nov. 27. The yen rose 0.4 percent to 113.50 per euro. The dollar slid to a three-month low versus the euro at $1.3262 before trading 0.4 percent weaker at $1.3231.

Sterling rose as former Bank of England Deputy Governor John Gieve said policy makers shouldn’t loosen monetary policy further or purchase bonds, given the economy is showing signs of strengthening. The pound appreciated as much as 0.5 percent to touch $1.5969, the strongest since Feb. 3, before trading at $1.5952, up 0.4 percent.

The Standard & Poor’s 500 Index fell for the first time in three days, declining 0.5 percent.

Homes, Factory Orders

An index of pending home resales in the U.S. unexpectedly dropped, falling 2.6 percent from May, National Association of Realtors data showed today. Economists in a Bloomberg News survey projected a 4 percent gain. U.S. factory orders fell 1.2 percent, more than the 0.5 percent drop forecast in a Bloomberg survey, Commerce Department data showed.

U.S. consumer purchases were unchanged after a 0.1 percent gain in May that was smaller than previously estimated, Commerce Department figures showed. The U.S. economy lost jobs for a second consecutive month in July, according to a Bloomberg News survey of economists before a Labor Department report Aug. 6.

“The data continues its recent streak of weaker-than- expected data,” Brown Brothers’ Chandler said. “It plays on people’s fears about the Federal Reserve maybe having to implement quantitative easing.”

Bond Speculation

Speculation the Fed will restart its bond-buying program to support the economy has mounted since Chairman Ben S. Bernanke said July 21 the outlook “remains unusually uncertain,” even as policy makers signaled they will probably pass on providing more stimulus at their meeting Aug. 10.

Central bankers will consider at their meeting whether to use cash the Fed receives when its holdings of mortgage bonds mature to buy new mortgage or Treasury bonds, the Wall Street Journal reported today. UBS AG yesterday raised its one-month estimate for the euro to $1.28 from $1.20, citing the possibility the Fed will buy more bonds.

“I’m not so sure we’ll see any changes in Fed policy in that regard, unless we really do see data that starts to crater,” said John McCarthy, director of currency trading at ING Groep NV in New York. “But I do think that during this level of uncertainty, it is possible we could see a bit more dollar weakness because I don’t think this whole cycle of reduced expectations for the U.S. economy has really worked its way through.”

Bernanke told lawmakers in South Carolina yesterday consumer spending is “likely to pick up” amid a “moderate” expansion. St. Louis Fed President James Bullard said on July 29 that he expects the “recovery will continue through the fall.”

Dollar Index

The dollar may extend its decline against the currencies of six major U.S. trading partners after falling below its 200-day moving average for the first time since January, according to technical analysts at Citigroup Inc.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies that include the euro and yen, fell today as much as 0.6 percent to 80.469, the lowest since April 15, crossing below the moving average at 80.719.

Sweden’s krona slipped 0.2 percent to 9.3697 per euro after the country’s National Debt Office said the currency’s appreciation may prompt it to end a successful 50 billion-kronor ($7 billion) bet once it reaches a level considered “normal.”

The krona yesterday touched a two-year high of 9.3367 per euro. It sank to a record low of 11.7896 in March 2009, as the debt office was buying it, after averaging 9.2 per euro between January 2002 and January 2008. The agency may start to trim its bet should the krona remain stronger than 9.5, said Johan Javeus, head of currency research at SEB AB in Stockholm.

The yen has appreciated versus all of its major counterparts this year. Japanese Finance Minister Yoshihiko Noda told parliament today currency rates should be determined by financial markets. He declined to comment on whether Japan will consider intervening to stem the yen’s appreciation.

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Mary Childs in New York at mchilds5@bloomberg.net

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