Euro Gains Versus Yen as IMF Revamps Credit Line Program; Dollar Declines
Yen Weakens After S&P, Moody’s Reaffirm U.S. Credit Ratings
Junko Kimura/Bloomberg
A salesclerk counts Japanese yen bank notes in the Yurakucho area of Tokyo, Japan. The yen lost 0.4 percent to 104.08 per euro as of 10:57 a.m. in Tokyo from the close in New York yesterday.
A salesclerk counts Japanese yen bank notes in the Yurakucho area of Tokyo, Japan. The yen lost 0.4 percent to 104.08 per euro as of 10:57 a.m. in Tokyo from the close in New York yesterday. Photographer: Junko Kimura/Bloomberg
Nov. 18 (Bloomberg) -- Sue Trinh, a senior strategist at Royal Bank of Canada in Hong Kong, talks about the global currency market and investment strategy. Trinh speaks with Rishaad Salamat on Bloomberg Television's "Asia Edge." (Source: Bloomberg)
The euro rose versus the yen to the strongest level in almost a week as demand for safety eased after the International Monetary Fund revamped its credit-line program to help countries facing outside shocks.
The 17-nation currency fluctuated earlier after a spokesman for German Chancellor Angela Merkel’s Christian Democratic party said “we don’t have any new bazooka to pull out of the bag” to fix the region’s debt crisis. The dollar remained lower after the Federal Reserve released minutes of its last meeting. Canada’s currency climbed on an advance in oil, the nation’s biggest export.
“The euro is mixed between the news out of the IMF expanding its lending and Germany saying they don’t have a bazooka to fix the problem,” said Greg Salvaggio, senior vice president of capital markets at the currency-trading firm Tempus Consulting Inc in Washington. “Selling the euro on rallies is the ultimate fundamental trade you want to have before we get a real resolution.”
The shared currency appreciated 0.2 percent to 103.96 yen at 5 p.m. New York time and touched 104.36 yen, the strongest since Nov. 16. It rose 0.1 percent to $1.3505 after gaining earlier as much as 0.6 percent and slipping as much as 0.1 percent. The dollar advanced 0.1 percent to 76.97 yen.
The euro gained earlier as European Commission President Jose Barroso said he expected the Italian government under Prime Minister Mario Monti to succeed in narrowing its budget deficit and bolstering the economy. Michel Barnier, the European Union’s financial-services chief, said he was putting finishing touches on a draft law on creditor writedowns at failing banks.
IMF Credit Line
The Washington-based IMF said its new Precautionary and Liquidity Line can be tapped by countries with strong economies currently facing short-term liquidity needs. Countries with potential needs can also apply, it said.
The cost for European banks to fund in dollars fell for the first time in seven days after reaching a three-year high yesterday. Three-month cross currency basis swaps, the rate banks pay to convert euro payments into dollars, were 1.35 percentage points below the euro interbank offered rate, data compiled by Bloomberg show. They reached 1.39 percentage points yesterday, the most expensive level since December 2008.
“We may get more IMF and central bank intervention to deal with liquidity shortages and support, but this is not the big bazooka yet,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “You have top-tier banks in Europe paying up for dollars, and they’re willing to go to the foreign-exchange swap market to do that because they don’t want the stigma from people knowing they are borrowing from the ECB,” he said, referring to the European Central Bank.
Canadian Currency
The Canadian dollar advanced 0.2 percent to C$1.0383 to the greenback after falling to C$1.0419 yesterday, the weakest since Oct. 7. The loonie, as the currency is nicknamed, climbed versus 12 of its 16 -traded counterparts after crude oil rose for the first time in four days as new sanctions against Iran and protests in Egypt raised concern supplies will be disrupted.
Brazil’s real was the biggest loser against the dollar, depreciating 0.6 percent to 1.8183 and touching 1.8281, the weakest level since Oct. 6.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, retreated 0.1 percent to 78.273. The gauge jumped 0.4 percent yesterday.
The dollar remained lower as minutes of the Fed’s Nov. 1-2 meeting showed some Fed policy makers said the central bank should consider easing policy further.
Additional Accommodation
“A few members indicated that they believed the economic outlook might warrant additional policy accommodation,” the Fed said in the minutes, released today. “It was noted that any such accommodation would likely be more effective if it were provided in the context of a future communications initiative.”
U.S. gross domestic product grew at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate, Commerce Department figures showed today in Washington.
Standard & Poor’s said the failure of Congress’s supercommittee yesterday to agree on reducing the U.S. budget deficit doesn’t affect the nation’s AA+ rating and the negative outlook for the debt. The company stripped the U.S. of its top AAA credit grade on Aug. 5. Moody’s affirmed the Aaa credit rating and maintained its negative outlook.
Yen May Climb
The yen may rally through 70 per dollar next year as global financial stability in the second half damps investor appetite for the greenback, according to JPMorgan Chase & Co.
Japan’s currency appreciated to 75.35 on Oct. 31, its highest since World War II. The yen will gain further in the last half of 2012 as the global economy stabilizes, driving investors to shun the dollar in favor of Japan’s currency, strategists led by Tohru Sasaki, head of Japan rates and foreign-exchange research in Tokyo, wrote in a report today.
The yen appreciated 6.3 percent over the past 12 months against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 1.1 percent, and the euro fell 1.6 percent.
To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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