Yen Falls Against Major Peers as Haven Demand Ebbs on U.S. Sales

The yen weakened against all of its 16 most-traded counterparts except the South African rand as a report showed U.S. retail sales rose more than forecast in September, reducing demand for safety.

The euro fluctuated versus the dollar after an index showed manufacturing in the New York area shrank for a third straight month. The shared currency touched a one-week high against the yen after German Finance Minister Wolfgang Schaeuble said a Greek default “will not happen.” Mexico’s peso climbed versus most major peers, while the rand slid after Standard & Poor’s cut South Africa’s credit rating on Oct. 12.

“We got a mixed snapshot on the U.S. economy today,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. (WU), said in a telephone interview. “There was good news on the consumer, which can bode better for the outlook on spending. On the other side of the coin, we saw that regional manufacturing remained a weak spot.”

The yen depreciated 0.3 percent to 78.65 per dollar at 5 p.m. New York time, adding to a 0.3 percent decline over the previous two trading days. It touched 78.86, the weakest level since Oct. 5. Japan’s currency fell 0.2 percent to 101.84 per euro and reached 102.29, the weakest level since Oct. 8. The euro was little changed at $1.2949 after gaining 0.2 percent and losing as much as 0.5 percent.

The Japanese currency has fallen 4.7 percent this year, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has dropped 2.3 percent, and the euro has lost 2.4 percent.

Low Volatility

Implied volatility among major currencies, which signals the expected pace of price swings, reached a seven-year low. A JPMorgan Chase & Co. index for Group-of-Seven currencies touched 7.47 percent, the lowest since October 2007, from 7.68 percent a week ago. Lower volatility makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profit. The index’s average over the past five years is 12.4 percent.

Brazil’s real, the Mexican peso and Sweden’s krona were the biggest winners today among the greenback’s major counterparts.

The Brazilian currency gained versus the dollar for the first time in four days. The real appreciated 0.3 percent to 2.0357 to the greenback.

The peso advanced 0.5 percent to 12.8035 to the American currency. The U.S. is Mexico’s biggest trade partner.

The krona strengthened 0.6 percent to 6.6605 per dollar and advanced 0.6 percent to 8.6245 per euro.

Retail Sales

U.S. retail sales increased 1.1 percent in September, Commerce Department figures showed today in Washington, reflecting broad-based gains that indicate household spending helped bolster economic growth last quarter. The advance followed a revised 1.2 percent gain in August that was the biggest since October 2010 and larger than previously reported. A Bloomberg survey projected a 0.8 percent rise.

“Good retail sales should be decent for risk-taking,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “The dollar is getting a little boost. The data is helpful to the U.S. dollar versus yen.”

The S&P 500 Index gained 0.8 percent after slipping 0.1 percent earlier, and the MSCI World Index rose 0.5 percent.

Gains Tempered

Gains in risk appetite were tempered as a gauge of manufacturing in the New York region contracted for a third straight month in October. The Federal Reserve Bank of New York’s general economic index rose to minus 6.2 from minus 10.4 in September, which was the lowest since April 2009. The median forecast in a Bloomberg survey called for minus 4. Readings of less than zero signal contraction in New York, northern New Jersey and southern Connecticut.

Commodities declined, with the S&P GSCI Index of raw materials decreasing as much as 1.4 percent before paring the loss to 0.3 percent.

The rand has tumbled since S&P cut South Africa’s credit rating last week by one level to BBB with a negative outlook. The company cited concern that a wave of strikes in the nation’s mining industry is placing pressure on government spending.

The currency dropped 0.8 percent to 8.7994 per dollar.

No Insolvency

The euro gained earlier versus the yen as German Finance Minister Schaeuble said there won’t be “a ‘Staatsbankrott’ in Greece,” using the German word for state insolvency. Europe’s sovereign-debt crisis began in the nation three years ago.

“Greece has had to take a lot of very serious reforms” and an increasing majority of the population “does understand that being a member of the common European currency is in the best interest of Greece,” Schaeuble said.

The euro fell earlier by the most in almost a week against the yen amid concern the euro bloc’s turmoil may worsen and economic growth in the region may falter. It depreciated as much as 0.6 percent, the biggest intraday drop since Oct. 9.

“The euro recovered this morning by filling the gap and retracing the losses earlier,” Dan Dorrow, head of research in Stamford, Connecticut, at Faros Trading LLC, said in a telephone interview. “The idea that they’re not going to let the Greek situation fail and disrupt the market has been a consensus among policy makers for a while.”

European Union leaders are scheduled to open a two-day summit in Brussels on Oct. 18.

Moving Average

The euro may strengthen toward $1.3172 after holding above its 200-day moving average of $1.2826, Credit Suisse Group AG strategists including London-based Cilline Bain wrote today in a note to clients. Support is an area on a chart where buy orders may be clustered.

“We continue to be bullish and look for support at $1.2826 to hold firm,” the strategists wrote. “We see risk skewed higher through $1.3011 and $1.3074 to re-test the $1.3172/78 zone,” they said.

Gains by the euro may be limited as investors wait to see if Spain will seek a financial bailout.

Spanish Economy Minister Luis de Guindos said over the weekend in Tokyo that he was “extremely comfortable” with his country’s ability to fund itself through 2012. The Spanish 10- year bond yield increased 19 basis points, or 0.19 percentage point, to 5.82 percent, after falling to 5.61 percent on Oct. 12, the least since Sept. 14.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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