Yen Strengthens as Equities Decline; Sweden’s Krona Weakens

The yen rose against most of its major counterparts as a decline in Asian and European stocks boosted demand for assets perceived to be safer.

The dollar stayed near a two-month low versus the euro as Moody’s Investors Service said it may need to place a “negative” outlook on the U.S. debt rating sooner than anticipated. Sweden’s krona fell as household lending slowed and retail spending fell last month.

“There’s an element of risk aversion kicking in as we close the week; equities are looking a little fragile,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The Moody’s warnings about the U.S. tie in with a theme of credit risk awareness.”

The yen strengthened 0.9 percent to 112.92 per euro at 7:42 a.m. in New York, the first gain in seven days. The Japanese currency appreciated 0.8 percent to 82.27 per dollar, erasing this week’s decline. The dollar was little changed at $1.3727 per euro, after depreciating to $1.3758 yesterday, the weakest since Nov. 22.

The Stoxx Europe 600 Index slid 0.2 percent today and the MSCI Asia Pacific Index of shares lost 0.4 percent, snapping a four-day gain. Futures on the Standard & Poor’s 500 index were little changed.

No ‘Major Issue’

Japan’s yen fell to a two-week low against the dollar yesterday after Standard & Poor’s lowered the nation’s credit rating one step to AA-.

“The downgrade isn’t a major issue for the yen,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s largest lender. “Virtually all Japanese government bonds are held in Japan so foreigners don’t hold much. If they did, there would be more implications for the currency.”

The Dollar Index, which tracks the currency against six counterparts, including the euro and the yen, was 0.1 percent weaker at 77.657. It has fallen 1.8 percent this month, as investors bet other central banks will raise borrowing costs before the Federal Reserve.

Moody’s said it may need to place a “negative” outlook on the Aaa rating of U.S. debt sooner than anticipated as the country’s budget deficit widens.

‘Negative Outlook’

“The probability of assigning a negative outlook in the coming two years is rising,” wrote Steven Hess, a senior credit officer at Moody’s in New York.

The U.S. economy grew at a 3.5 percent annual pace in the three months ended Dec. 31, up from a 2.6 percent rate in the previous quarter, according to a Bloomberg survey of economists before the Commerce Department data. Consumer spending, which accounts for about 70 percent of the economy, increased at a 4 percent annual pace, the most since the last three months of 2006, a separate survey showed.

“The fourth-quarter GDP could provide support for the dollar,” said Audrey Childe-Freeman, a head of European currency strategy at JPMorgan Chase & Co.’s private bank in London. “We need a very strong number to see a sharp rally but if we get something in the range around 3.5 percent, which is the consensus, the dollar should do better.”

The dollar has slid 2.6 percent against the euro in January, 3.9 percent versus the Swedish krona and 2 percent against the pound.

Swedish Retail Sales

Sweden’s krona slipped 0.2 percent against the euro to 8.8496 and weakened a similar amount against the dollar, to 6.4468.

The Swedish currency weakened against 15 of its 16 major trading partners. Retail sales rose 0.1 percent from October, when purchases increased a revised 0.6 percent, Stockholm-based Statistics Sweden said today. Household credit growth slowed to an annual 8.4 percent from 8.6 percent, the office said in a separate statement.

The Australian dollar fell for the first time in three days against the yen on speculation the central bank will slow the pace of interest-rate increases to help the nation recover from months of flooding. Prime Minister Julia Gillard announced yesterday a one-off levy to help pay for reconstruction.

“The market’s been long Aussie for so long and we’ve got to expect more flood-related bad news so Aussie’s going to underperform for a while longer,” said Paul Bednarczyk, a strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers.

Australia’s currency slipped 0.2 percent to 82.09 yen and was gained 0.5 percent to 99.74 U.S. cents. It has declined 1.1 percent against the yen so far this year.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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