The yen strengthened the most in two weeks against the dollar after the Bank of Japan (8301) refrained from expanding monetary stimulus that debases the currency.
The euro fell against most of its major counterparts before Greek elections June 17 that may determine whether the nation stays in the currency union. The dollar was set for weekly declines as May industrial production unexpectedly fell and June consumer confidence trailed forecasts, adding to the case for further stimulus from the Federal Reserve.
“Some people were expecting some sort of action from the BOJ and when they didn’t, it increased the upward pressure on the yen,” said Mary Nicola, a currency strategist at BNP Paribas SA in New York. “The BOJ is just going to wait and see what happens with Greece and what happens with the Fed.”
The yen appreciated 0.9 percent to 78.65 per dollar at 11:37 a.m. New York time, the biggest gain since May 31. It advanced 0.8 percent to 99.41 per euro. The dollar was little changed at $1.2640 per euro.
The Canadian dollar dropped after the weaker data from the U.S., its biggest trade partner. The loonie, as the Canadian currency is known, lost 0.1 percent to C$1.0235.
Japan’s currency strengthened at least 0.3 percent against all of its 16 major counterparts after the BOJ kept its asset- purchase fund at 40 trillion yen ($510 billion) today, matching the forecasts of 13 economists surveyed by Bloomberg News.
The central bank unexpectedly increased the fund on Feb. 14 and introduced a 1 percent inflation goal. That triggered a 1.1 percent drop in the yen that day against the dollar.
Premiums for three-month options for the euro against the dollar were at 2.84 percentage points, up from a low this year of 1.41 percentage points in March, showing investors are willing to pay more for the right to sell the common currency. The so-called risk reversal rate has eased from 3.47 percentage points last month.
The implied volatility for one-month euro-dollar options was at 12.57 percent, after reaching 13.3 percent last week. While that’s up from 8.25 percent in April, it’s below last year’s peak of 18.42 percent in September. The JPMorgan Global FX Volatility Index was at 10.9 percent after falling to 8.8 percent in April.
Greater volatility makes investments in currencies with higher benchmark lending rates less attractive because the risk in such trades is that market moves will erase profits.
“It is the ultimate risk-aversion trade to take long dollar positions in the face of global adversity, so anything that suggests otherwise would see liquidation of long dollar positions,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “The global response in the form of coordinated action is beginning to kick in, favoring the euro.” A long position is a bet the value of an asset will increase.
Greeks will vote for the second time in six weeks after a May 6 ballot failed to yield a government. The final opinion polls showed no party set to win a majority. Exit polls will be released when voting ends at 7 p.m. in Athens, with a first official result estimate due around 9:30 p.m. The elections will be followed by meetings by Group of 20 policy makers on June 18-19.
The elections may determine whether Greece upholds austerity conditions attached to international aid, tries to renegotiate the terms or abandons the pledge and risks what would be the first departure from the euro bloc. Spain on June 9 became the fourth of 17 members to request a bailout.
Central banks are preparing for coordinated action to provide liquidity if needed after a general election in Greece in two days, Reuters reported.
The Australian dollar is facing a “key test” as it reaches a 50 percent retracement of $1.0028 from the April 27 high to the June 1 low, according to Niall O’Connor, a technical analyst in New York at JPMorgan Chase & Co. An advance above $1.0135 would imply a “better tone” and potential for a bigger gain, O’Connor wrote in a research note yesterday.
The Aussie gained 0.4 percent to $1.0064.
Output at U.S. factories, mines and utilities decreased 0.1 percent last month after a revised 1 percent gain in April, the Fed reported today in Washington. Economists forecast a 0.1 percent advance, according to the Bloomberg News survey median. Manufacturing, which makes up about 75 percent of total production, dropped 0.4 percent last month.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for June fell to 74.1 from 79.3 at the end of last month. Economists projected the gauge to drop to 77.5, according to the median estimate in a Bloomberg News survey.
“Weak data does encourage expectations of some easing from the Federal Reserve next week,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “We’ve certainly seen a string of softer data in the U.S. If I were to pick a currency that would benefit from softer U.S. numbers at this point it would probably be the yen.”
The Fed bought $2.3 trillion of bonds in two rounds of so- called quantitative easing from 2008 through 2011 to stimulate the economy through lower borrowing costs. Central bank policy makers meet on June 19 and 20.
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, slipped for a fourth day, falling as much as 0.4 percent to 81.703, the least since May 23. It was down 0.9 percent for the week.
To contact the editor responsible for this story: Dave Liedtka at Dliedtka@bloomberg.net