Yen Declines Most in Year Against Dollar Amid Economic Growth Differences
The yen had the biggest weekly drop versus the dollar in more than a year as economic reports added to signs central banks in Europe and the U.S. are closer to raising interest rates as the global economy recovers.
Japan’s currency reached the weakest level since September amid concern the nation’s economy will be hampered by the aftermath of the March 11 earthquake and tsunami while U.S. unemployment fell to a two-year low. Brazil’s real advanced the most in one and one-half years on speculation the government will allow the currency to strengthen as a counterweight to inflation. The euro rose against the greenback and yen with the European Central Bank forecast to raise interest rates at its April 7 meeting for the first time since July 2008.
“What we saw, as far as the yen was concerned, was the positive U.S. report, increased interest-rate expectations,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “Our economics team does expect that the ECB going to deliver the rate hike that’s been signaled fairly clearly.”
The yen fell 3.4 percent against the dollar to 84.06, from 81.34 on March 25 and touched the weakest level since Sept. 24. It was the biggest weekly decline since Dec. 4, 2009. The Japanese currency fell 4.4 percent versus the euro to 119.66, the most since the five days ended Sept. 17. The euro strengthened 1.1 percent against the greenback to $1.4237.
Yen Swings
The Japanese currency weakened against all its major counterparts this week, after strengthening to a post-World War II high of 76.25 on March 17.
Radiation levels that can prove fatal were detected outside reactor buildings at Japan’s Fukushima Dai-Ichi plant for the first time last week. Elevated radiation levels have been detected in crops grown near the stricken plant as well as the water supply in Tokyo, 220 kilometers to the south, and other regions.
“Fundamentals have shifted in Japan because, when this is said and done, Japan’s trade surplus will shrink dramatically or even turn in to a deficit” as the country focuses on rebuilding, said Greg Anderson, a currency strategist at Citigroup Inc. in New York.
Canada’s dollar climbed to a three-year high and Mexico’s peso reached the strongest since October 2008 against the greenback on expectations the nations will benefit from accelerating growth in their biggest trading partner.
Canada Strength
Canada’s dollar gained 1.8 percent to 96.32 cents per U.S. dollar. Mexico’s peso rose as high as 11.8265 per dollar.
Brazil’s real had its biggest weekly gain one and one-half years. The nation imposed a 6 percent tax on international bond sales and loans, which Finance Minister Guido Mantega said was an attempt to stem the real’s 44 percent gain against the dollar since the end of 2008.
The central bank said March 29 the economic costs are “too high” to cut inflation to its 4.5 percent goal this year from a more than two-year high of 6.13 percent currently. Investors are speculating the government will shift strategy and allow the real to strengthen as a counterweight to inflation, said Mariano Cirello, who manages 5 billion reais ($3 billion) as chief investment officer at Mapfre Investimentos in Sao Paulo.
The real was up 3.3 percent this week, the most since the period ended July 17, 2009.
More Jobs
U.S. nonfarm payrolls rose by 216,000 in March and unemployment fell to a two-year low. Economists in a Bloomberg survey had forecast a gain of 190,000 jobs. The unemployment rate fell to 8.8 percent from 8.9 percent in February.
The Fed has kept the U.S. benchmark at zero to 0.25 percent since December 2008 and there is a 44.5 percent chance the U.S. central bank will raise rates in December, compared with a 35 percent chance March 31, according to CME Group Inc. exchange futures.
The dollar weakened against the euro yesterday after New York Fed President William Dudley said not to be “overly optimistic about the growth outlook.”
Fed Bank Presidents Thomas Hoenig, Jeffrey Lacker, Charles Plosser and James Bullard spoke earlier last week signaling optimism on U.S. growth. St. Louis Fed President Bullard said the central bank may be able to cut about $100 billion from its plan to buy $600 billion Treasury securities through June.
Fed Views
“The data this week has been consistent with the hawkish rhetoric coming from the Fed and validates what we’ve heard,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “I think we’ll see a significant adjustment in the Fed’s language at the conclusion of the April meeting.
The ECB’s benchmark rate will reach 1.75 percent by the end of this year, up from the current record low 1 percent, while the Fed will lift rates in the first quarter of next year and the Bank of Japan will leave its key interest rate unchanged, separate surveys show.
The implied yield on the three-month Euribor contract expiring in December rose to 2.12 percent yesterday, from 1.33 percent at the beginning of the year, as investors added to bets that interest rates will rise.
“Our definition of price stability is below 2 percent, close to 2 percent,” ECB President Jean-Claude Trichet said March 28. “Differences must be a worry because they can become persistent.”
Trichet, told the European Parliament March 21 he has “nothing to add” to his March 3 remarks when he said policy makers may raise the benchmark rate from a record low of 1 percent at their next meeting April 7.
Europe’s shared currency’s strength was also unfazed against the yen as Standard & Poor’s Ratings services lowered Portugal’s sovereign credit ratings to BBB-/A-3. BBB- is the lowest investment grade. Greece was also cut by S&P to BB- from BB+ and its outlook remains negative.
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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