The yen rallied against all of its major counterparts as speculation increased that the surge in oil prices this month and Europe’s unsettled debt crisis may weigh on economic recoveries, boosting demand for safety.
The euro extended its decline, falling by the most in more than three months against the yen, after Standard & Poor’s placed the region’s rescue fund on negative outlook. Some higher-yielding currencies, including South Africa’s rand, erased earlier declines as stocks advanced. The Swedish krona led losses against the yen among the 16 major currencies.
“We’ve still got a reasonable amount of event risk, particularly with getting the Greek deal over the line,” said Ray Attrill, a senior currency strategist at BNP Paribas SA in New York.
The yen gained 1.1 percent to 107.99 per euro at 5 p.m. New York time after rising 1.8 percent, the most since Nov. 9. It broke a seven-day decline against the common currency, the longest such streak since January 2010. The Japanese currency gained 0.7 percent to 80.61 per dollar after earlier touching 81.67, the weakest since May 31. The euro was 0.4 percent weaker at $1.3398.
The euro briefly extended its losses against the dollar after S&P cut its outlook on the bailout fund, the European Financial Stability Facility, to negative, reflecting a similar move on two euro-area nations that act as guarantors to the facility. The EFSF lost its top credit rating in January after earlier downgrades to France and Austria.
The euro remained lower even after Germany’s lower house of parliament approved a second Greek bailout package worth 130 billion euros ($174 billion). German Chancellor Angela Merkel and euro-area leaders now shift their focus on whether to bolster the region’s bailout firewall as they prepare for a summit meeting in Brussels on March 1-2.
The S&P 500 Index rose 0.2 percent after earlier falling as much as 0.8 percent.
The reversal in stock prices helped spur some higher- yielding currencies to rise against the dollar. The South African rand rose 0.6 percent to 7.5530 and Mexico’s peso added 0.1 percent to 12.8907.
Sweden’s krona fell 1.3 percent to 12.22 yen and lost 0.6 percent to 6.5957 per dollar.
Crude oil for April delivery rallied to $109.95 a barrel last week, the highest level since May 4. The increase in prices may weigh on U.S. consumer spending, stalling the economic recovery and prompting the Federal Reserve to more seriously consider additional easing measures, said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York.
Oil dropped 1.6 percent to $107.82 today. It averaged $95.12 a barrel during 2011.
“Dollar-yen is a referendum on the oil prices,” GFT Forex’s Schlossberg said. “That oil prices have skyrocketed so far so fast is making a lot of people wonder if it’s going to have an impact on the U.S. consumer, and it’s damping the mood.”
The dollar erased a gain of as much as 0.6 percent versus the yen as a technical indicator suggested its recent appreciation has come too quickly. The greenback’s 14-day relative strength index against Japan’s currency was at 72.2, above the 70 level that some traders see as a sign an asset may be about to reverse direction.
The U.S. currency will face so-called resistance near the 82 yen level with a break above that signaling a gain toward 85.60 yen, he said.
The yen has plunged since the Bank of Japan (8301), which has struggled for more than a decade against deflation, said on Feb. 14 that it would aim for 1 percent annual gains in consumer prices and would add 10 trillion yen ($124 billion) to the economy.
The Japanese currency has weakened 6.4 percent in the past month, the biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has lost 1.1 percent and the euro has gained 0.4 percent in the period, the indexes show.
There are also indications the U.S. economy is improving. The number of Americans signing contracts to buy previously owned homes in January rose 2 percent from the previous month, figures from the National Association of Realtors showed today. A Bloomberg News survey of economists forecast a 1 percent increase.
Finance ministers and central bankers of the G-20 nations meeting in Mexico this weekend concluded that a European review of its financial firewall in March is “essential” before any consideration can be made to boost resources for the International Monetary Fund, the group said in its closing statement issued in Mexico City yesterday. Progress will be assessed in April, when officials gather in Washington for the IMF’s spring meetings.
The euro briefly pared its loss against the dollar after the European Central Bank said today it hasn’t bought any government bonds for two straight weeks, the first pause since August. The purchases have dwindled since the ECB funneled a record 489 billion euros ($655 billion) of three-year loans into the banking system in December, fueling a bond-market rally and reducing the need to intervene with its Securities Markets Program.
The central bank will offer another round of unlimited three-year loans to financial institutions Feb. 29.
“What the ECB has done is significant because they’ve given a lot more assurance that the euro-zone banks are going to be fine in terms of recapitalization,” said Chris Fernandes, vice president of foreign exchange at Bank of the West in San Ramon, California. “It’s a positive for the euro overall.”
The euro declined after Moody’s Investors Service said Greek default risk “remains high.” The ratings company said in its weekly credit outlook that there is still a chance creditors won’t agree to a proposed private-sector involvement, or PSI, in the nation’s second bailout. Europe’s most-indebted nation formally asked investors to exchange their holdings of government debt for new securities last week.
Failure of the British pound to break above its 200-day moving average versus the dollar means it’s set to weaken, according to Citigroup Inc.
Sterling hasn’t been able to trade above the so-called resistance level, now at $1.5905, since Oct. 31 and hasn’t closed above it since Sept. 2. A failure to breach this level and a decline to $1.5644 may see the British currency fall to $1.5385, Tom Fitzpatrick, chief technical analyst at Citigroup Inc. in New York, wrote to clients today. A break above the moving average would open the pound up to climbing to $1.6165 to $1.6170, he said.
The pound rose as much as 0.2 percent today to $1.5902, before trading down 0.3 percent at $1.5824.
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