The yen fell against most of its major peers as stock markets climbed amid reduced demand for haven assets and signs the U.S. economy is strengthening.
The Japanese currency slipped as the Standard & Poor’s 500 Index climbed 0.8 percent after the number of applications for U.S. unemployment benefits unexpectedly dropped last week and consumer sentiment improved, signaling the economy may resist turmoil from Europe’s debt crisis. The euro fluctuated against the dollar as Italy’s Senate approved Prime Minister Mario Monti’s 30 billion-euro ($39 billion) emergency budget plan.
“The yen is finally starting to respond to positive U.S. economic data,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “The market is finally starting to price in the possibility that U.S. growth might start to perk up.”
The yen has appreciated 3.5 percent this year against nine developed-nation counterparts as Europe’s crisis intensified, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar has advanced 1 percent and the euro has fallen 1.4 percent.
South Africa’s rand has declined 19 percent against the dollar in 2011, the most of the U.S. currency’s most-traded peers, followed by Mexico’s peso with a 10.7 percent loss. The yen has advanced 3.8 percent for the largest gain against the greenback, while the pound is up 0.4 percent.
Equities gained after the number of Americans applying for unemployment benefits decreased to 364,000, the fewest since April 2008, while the Thomson Reuters/University of Michigan index of consumer sentiment topped the median economist forecast. U.S. gross-domestic-product expanded at a 1.8 percent rate in the third quarter, slower than the 2 percent median growth projection in a Bloomberg survey.
“I’m nonplussed by today’s downward revision” in GDP, said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York. “I’m not overly concerned by that at this point because we’re seeing strong anecdotal evidence of a pretty resilient consumer.”
The European Central Bank said yesterday that it had awarded 489 billion euros ($638 billion) in 1,134-day loans to banks, more than the 293 billion euros forecast by economists. The auction sparked speculation that European banks may use the loans to buy sovereign debt, which the central bank under President Mario Draghi has resisted doing.
While investors had hoped the move would indirectly ease borrowing costs for European governments, concerns have also emerged that banks will hold the cash rather than buying sovereign debt to provide for their own funding needs, Schlossberg said.
“There’s fear that the banks are going to hoard the capital instead of buying sovereign bonds,” he said.
European financial institutions are paying triple what banks in London say it costs them for three-month unsecured dollar funding as credit to the region dries up while the sovereign-debt crisis moves into its third year.
The rate global financial firms are paying to fund themselves for three months in dollars, as implied by the foreign-exchange market, exceeds the British Bankers’ Association’s dollar London interbank offered rate by more than three times.
The future of the euro will be decided in the next six months and the joint currency has “no future” unless Germany changes its stand, Peter Bofinger, a member of Chancellor Angela Merkel’s council of economic advisers, was quoted as saying by Wirtschaftswoche.
While measures agreed to by European policy makers will take one to two years to enter into force, the European Central Bank could help by setting a cap for the long-term yields on Italian and Spanish government bonds, the Dusseldorf-based magazine quoted Bofinger as saying in an interview released today to other media ahead of publication.
“A little more honesty is welcomed because it’s better than burying your head in the sand,” said Win Thin, head of emerging market strategy at Brown Brothers Harriman & Co. in New York, about Bofinger’s comments. “Peripheral spreads are still elevated.”
Italy’s two-year yields advanced three basis points to 5.01 percent, after falling to 4.74 percent, the least since Oct. 31. They yield has declined 1.1 percentage points since Draghi announced the unprecedented ECB loans on Dec. 8.
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