The yen rose to a seven-week high versus the dollar amid bets the Bank of Japan at its policy meeting tomorrow will refrain from adding to stimulus that’s helped weaken the currency 11 percent this year.
The pound advanced against the majority of its most-traded counterparts as the Bank of England’s consideration of inflation tempered speculation the central bank will keep borrowing costs at a record low. The euro climbed for a second day versus the greenback after a report showed German industrial production rose in June more than analysts forecast. India’s rupee fell toward an all-time low on concern the Federal Reserve will taper stimulus that’s driven cash into emerging-market assets.
“Japanese yen strength is likely positioning related ahead of the BOJ decision,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said via instant message. Other Group of 10 central banks “have taken steps to further ease conditions via either shifts in language or outright policy action. The BOJ isn’t expected to join those banks in increasing accommodation this week, and I think that might be contributing to the stronger Japanese yen.”
The yen added 1.4 percent to 96.33 per dollar at 5 p.m. in New York, the strongest level since June 20. Japan’s currency climbed 1.2 percent to 128.47 per euro. The euro added 0.2 percent to $1.3336 after touching $1.3345, matching a six-week high set July 31.
India’s currency was the biggest decliner among the dollar’s 31 most-traded peers after Raghuram Rajan, who will take charge of India’s central bank when Governor Duvvuri Subbarao’s term ends Sept. 4, said yesterday more steps will be taken soon to stabilize the rupee.
The currency fell 0.9 percent to 61.30 per dollar, according to prices from local banks compiled by Bloomberg, after tumbling to an all-time low of 61.8050 yesterday.
The pound rebounded from the steepest decline in a month versus the dollar after the Bank of England said the 7 percent unemployment level is a threshold, not a “trigger,” for the Monetary Policy Committee to reassess its policy stance. The key rate is at a record-low 0.5 percent.
Sterling added 0.9 percent to $1.5489 after dropping as much as 0.9 percent. It rose 0.7 percent to 86.10 pence per euro after depreciating to 87.70 pence on Aug. 1, the weakest level since March 12.
Mexico’s peso weakened for the first time in four days as President Enrique Pena Nieto pushed back the announcement of a proposal to overhaul the energy industry. The peso slumped 0.8 percent to 12.7167 per dollar.
The BOJ won’t expand stimulus at the end of its meeting tomorrow, according to all 25 economists surveyed by Bloomberg News. The central bank currently buys more than 7 trillion yen ($72 billion) of government bonds every month as part of its effort to increase annual inflation toward 2 percent in two years.
The yen has gained 5 percent over the past three months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 3.6 percent, and the dollar strengthened 2 percent.
Japan had a surplus of 400 billion yen in its June current account, the broadest measure of trade, according to a survey of economists before the Ministry of Finance report tomorrow. The trade deficit is likely to have narrowed to the least in a year as a weaker currency typically makes exports more competitive.
“We’ll see if there’s any revisions in the statements from the BOJ to reverse course,” Fabian Eliasson, head of U.S. currency sales in New York at Mizuho Financial Group Inc. (8411), said in a phone interview. “The dollar has been under pressure a little bit just overall on the ongoing tapering outlook. It’s putting some pressure on the dollar, so that has something to do with” the yen’s rise, he said.
Fed Bank of Chicago President Charles Evans, among the strongest proponents of the unprecedented efforts to stimulus the U.S. economy, said yesterday he “would clearly not” rule out a decision to begin curbing the $85 billion in monthly bond purchases next month.
The MSCI Asia Pacific Index of Asian shares dropped 1.7 percent while the Standard & Poor’s 500 Index (SPA) declined 0.4 percent.
Trading in over-the-counter foreign-exchange options totaled $28 billion, compared with $31 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $11.6 billion, the largest share of trades at 41 percent. Options on the sterling-dollar rate totaled $4.5 billion, or 16 percent.
Dollar-yen options trading was 94 percent more than the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Pound-dollar options trading was 89 percent more than average.
The euro strengthened after the Economy Ministry in Berlin said German industrial production rose. Output increased 2.4 percent from May, when it dropped 0.8 percent. Economists forecast a gain of 0.3 percent, according to the median of 41 estimates in a Bloomberg News survey.
Germany’s AAA credit ranking was affirmed as stable by Fitch Ratings, which said in a statement that the government “has overachieved on some key fiscal targets.”
European Central Bank President Mario Draghi said last week economic indicators signal the currency bloc is past the worst of its longest-ever recession, while reiterating that interest rates will stay low for the foreseeable future.
To contact the reporter on this story: John Detrixhe in New York at firstname.lastname@example.org