Yen, Dollar Strengthen on Speculation Unrest in Middle East Will Intensify

The yen and the dollar strengthened against most of their major counterparts as concern that unrest in the Middle East will spread boosted demand for safer assets.

Japan’s currency rose from a three-month low against the euro as stocks fell in Europe and Asia and Libyan leader Muammar Qaddafi’s son said the country may have a civil war. The euro dropped as German Chancellor Angela Merkel’s party was defeated in Hamburg, fueling concern that efforts to fix the sovereign- debt crisis will be derailed. The pound retreated from a two- week high against the dollar after Chancellor of the Exchequer George Osborne signalled he supported the Bank of England’s decision to keep interest rates at a record low.

“We’re concerned about the situation in the Middle East, and that’s going to keep risk aversion on the agenda, which supports the dollar and the yen,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen.

The yen strengthened 0.2 percent to 113.65 per euro as of 2:44 p.m. in London. It reached 114.04 earlier today, the weakest level since Nov. 22. It was little changed at 83.15 per dollar. Japan’s currency gained the most against the South Korean won, appreciating by 0.6 percent to 13.4416. It was 0.4 percent stronger against the Australian dollar at 84.05 yen. The euro slipped 0.2 percent to $1.3665.

Currency moves may be exaggerated today because of lower than usual trading volumes given the President’s Day holiday in the U.S., Christensen said.

Civil War

Saif al-Islam Qaddafi called on Libyan protesters to engage in dialogue or face a civil war that risks “hundreds of thousands of dead” as a widening revolt posed the most serious challenge to his father’s 41 years of rule. Libyan security forces yesterday attacked anti-government protesters in Benghazi, the nation’s second-largest city.

The North African country, holder of the continent’s largest reserves of crude oil, has become the focal point of region-wide protests ignited by the ouster of Tunisia’s president last month and energized by the fall of Egyptian President Hosni Mubarak on Feb. 11. Violence has also flared in Yemen, Djibouti and Bahrain.

The MSCI AC Asia Pacific excluding Japan Index snapped three days of gains, losing 0.4 percent, while the Stoxx Europe 600 Index lost 0.5 percent.

The yen typically strengthens in times of political, financial and economic turmoil. Japan’s trade surplus makes the currency attractive because it means the nation doesn’t have to rely on overseas lenders.

German Confidence

Europe’s common currency pared losses after a report showed German business confidence unexpectedly rose to a record in February. The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, increased to 111.2 from 110.3 in January. That’s the highest since records for a reunified Germany began in 1991. Economists predicted the index would hold steady, according to the median of 38 forecasts in a Bloomberg News survey.

The euro climbed for a second day against its Swiss counterpart, strengthening by 0.2 percent to 1.2955. It also advanced by 0.2 percent against the Swedish krona to 8.7643.

“It’s the better-expected Ifo data today which is pushing the euro versus the franc,” said Ursina Kubli, a currency analyst at Bank Sarasin & Cie in Zurich. “All in all, the franc is overvalued at the moment.”

Pound Slips

Sterling fell 0.2 percent to $1.6227, after strengthening on Feb. 18 to $1.6263, its strongest level since Feb. 3. It was little changed at 84.26 against the euro.

The Bank of England can “see through temporary increases in price levels and look to permanent threats,” Osborne told reporters in Paris yesterday following talks with Group of 20 finance ministers. The central bank has kept the benchmark interest rate at 0.5 percent since March 2009, even as inflation has accelerated to twice its 2 percent target. Sterling has climbed this year on speculation the bank will be forced to raise rates.

New Zealand’s dollar climbed against 15 of its 16 most- actively traded peers on speculation Fonterra Cooperative Group Ltd. will raise its forecast for payouts to farmers, boosting the nation’s economic recovery.

The currency, also known as the kiwi gained 0.3 percent to 76.35 against the dollar and was 0.2 percent stronger against its Japanese counterpart at 63.51 yen.

The board of Auckland-based Fonterra, the world’s largest dairy exporter, meets tomorrow after whole milk powder prices climbed to a 31-month high. The dairy exporter raised its forecast payment to farmers by 4.5 percent on Dec. 10, citing higher international prices.

“Fonterra could be announcing an upward revision to their forecast dairy payout for this season sometime this week,” said Khoon Goh, head of market economics at ANZ National Bank Ltd. in Wellington. That should be taken positively by the currency markets.”

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net

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

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