The yen strengthened from near a two-week low against the dollar as speculation a cash crunch in China will curb the nation’s economic growth supported demand for the relative safety of Japan’s currency.
The yen advanced for a third day versus the euro after a Chinese official said the Bank of China will closely monitor the money-market rate. The Dollar Index dropped for the first time in five days after two Federal Reserve presidents yesterday emphasized monetary policy will remain accommodative. Sweden’s krona rose from the weakest since November against the dollar as producer prices fell less in May than economists forecast.
“The market did turn around aggressively when the ramifications from China kicked into play,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “There is a global recovery going on but it’s fragile and people will run for the hills when they hear comments like that.”
The yen rose 0.3 percent to 97.45 per dollar at 7:01 a.m. in New York after sliding to 98.70 yesterday, the weakest level since June 11. Japan’s currency advanced 0.2 percent to 127.93 per euro, extending its gain during the past three days to 0.5 percent. The dollar was little changed at $1.3134 per euro.
Chinese stocks have slumped since the nation’s overnight repurchase rate jumped to a record on June 20. Goldman Sachs Group Inc. cut its 2013 gross domestic product forecast for the nation yesterday, saying the cash squeeze is hurting growth.
China’s liquidity risks are controllable, Ling Tao, deputy director of the PBOC’s Shanghai branch, said at a briefing in Shanghai. The comments followed a PBOC statement released yesterday saying there was a reasonable amount of liquidity in the system and urging banks to control risks from lending.
Volatility in currencies surged since the Fed signaled last week it may start reducing stimulus this year. JPMorgan Chase & Co.’s Group of Seven Volatility Index, based on currency option premiums, was at 11.66 percent today after rising to 11.96 percent yesterday, the highest since January 2012.
Chairman Ben S. Bernanke said June 19 the Fed may begin tapering bond purchases this year and end them in mid-2014. The central bank has been buying $40 billion of mortgage-backed securities and $45 billion of U.S. government debt each month to put downward pressure on borrowing costs.
“What we’re talking about here is dialing back,” Richard Fisher, president of the Fed Bank of Dallas, said in London yesterday. “The word ‘exit’ is not appropriate here,” he said. Minneapolis Fed President Narayana Kocherlakota said yesterday the Fed must emphasize in its statement that policy will remain accommodative “for a considerable time.”
The Dollar Index, which IntercontinentalExchange Inc. uses to monitor the U.S. currency against those of six trading partners, fell 0.3 percent to 82.299, after climbing to 82.841 yesterday, the strongest since June 5.
“The speeches we had in recent days haven’t really altered the announcement that we had last week,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. The dollar will probably resume gains “particularly against other low-yielding currencies -- sterling, the euro and the yen in particular. There’s lot of scope for dollar-yen to rise.”
The krona rose for the first time in five days as Statistics Sweden said producer prices fell 0.1 percent in May from April, when they dropped 1.1 percent. Economists surveyed by Bloomberg predicted a decline of 0.2 percent.
Swedish Finance Minister Anders Borg said he welcomed a weaker exchange rate “when we see problems in the world economy.” He spoke in a telephone interview with Bloomberg Television’s Francine Lacqua and Guy Johnson.
The krona climbed 1.4 percent to 6.66744 per dollar after sliding to 6.8018 yesterday, the weakest since Nov. 16. The currency rose 1.2 percent to 8.7664 per euro.
Norway’s krone gained 0.9 percent to 6.0825 per dollar, halting a six-day slide.