Yen Drops as Risk Appetite Rises on U.S. Debt-Limit Talks

The yen fell against all of its 16 most-traded counterparts as risk appetite increased amid speculation that U.S. lawmakers will reach an agreement to avert a default, curbing demand for Japan’s currency as a refuge.

The dollar rose a fourth day versus the yen as the White House weighed an offer from House Republicans for a short debt-limit extension and President Barack Obama met with Senate Republicans to discuss the limit and the partial government shutdown. The euro pared gains as a European Central Bank Governing Council member said its strength may hurt Europe’s exports. Sterling fell to a six-week low versus the euro.

“Confidence has been shaken by the U.S. fiscal behavior, but as the week draws to a close, the fears of a default have eased,” Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co. in New York, wrote in a note to clients. “We expect more progress over the weekend.”

The yen depreciated 0.4 percent to 98.58 per dollar at 5 p.m. New York time, having slid 1.5 percent in the prior three sessions. It reached 98.60, the weakest level since Oct. 1, and declined 1.1 percent on the week. Japan’s currency dropped 0.6 percent to 133.51 per euro, and lost 1 percent on the week. The dollar fell 0.2 percent to $1.3544 per euro after losing as much as 0.5 percent earlier.

Stocks rose. The Standard & Poor’s 500 Index gained 0.6 percent after rallying 2.2 percent yesterday in the second-biggest jump in 2013 on bets U.S. lawmakers would reach a deal.

Pound, Krona

The pound dropped against Europe’s shared currency as a report showed U.K. construction slipped 0.1 percent in August. Economists in a Bloomberg survey estimated a 0.8 percent increase. Sterling lost 0.3 percent to 84.90 pence per euro and touched 85.10, the weakest level since Sept. 2.

Sweden’s krona gained as the nation’s non-seasonally adjusted jobless rate, as measured by the number of people claiming benefits, fell to 4.6 percent last month, from 4.8 in August, the Stockholm-based Public Employment Service said. Economists in a Bloomberg survey forecast 4.7 percent.

The krona advanced for the first time in four days against the dollar, appreciating 0.4 percent to 6.4761. It strengthened 0.3 percent to 8.7702 per euro.

A gauge of price swings dropped to the lowest level since January. The JPMorgan Global FX Volatility Index fell to 8.42 percent, versus the 2013 average of 9.36 percent.

Euro Strength

The euro pared an advance versus the greenback after Ewald Nowotny, an ECB Governing Council member, said the current level of the 17-nation currency may be harming European exports.

“We have seen the tendency of the appreciation of the euro vis-a-vis the American dollar,” Nowotny said to reporters in Washington. “We have to look at these developments because on the one hand this might have negative effects on export performance, and therefore on economic performance, especially on southern members of the euro zone.”

The House proposal for a debt-limit increase through Nov. 22 would require Obama to accept policy conditions attached to a separate spending measure, said two congressional aides. Obama has insisted that he won’t accept conditions for ending the shutdown, which is in its 11th day. House Republicans are scheduled to meet at 9 a.m. tomorrow to discuss their plans.

Senate Republicans are considering a plan that would pair provisions to raise the debt ceiling and end the shutdown with a repeal of a medical-device tax. It would change pension rules to offset the lost revenue from the tax.

The dollar advanced 0.4 percent this week, according to Bloomberg Correlation Weighted Indexes that track 10 developed-nation currencies. The yen fell 0.9 percent, while Australia’s currency rose 0.7 percent and the euro gained 0.2 percent.

‘More Confident’

“The yen is underperforming against a basket of currencies, and that is in part a function of potential progress in Washington,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Currencies are reflecting a more confident global backdrop.”

Goldman Sachs Group Inc. raised its forecast for the yen versus the dollar, saying momentum behind Prime Minister Shinzo Abe’s reforms has slowed and expectations of further easing by the Bank of Japan haven’t been realized.

The yen will trade at 98 per dollar over three months, the bank said, from an earlier projection for it to fall to 105, according to a note to clients dated Oct. 10. Japan’s currency will trade at 103 over six months and 107 over a year, compared with previous forecasts of 105 and 110 respectively, it said.

‘Drift Higher’

“We expect additional monetary-policy easing and some further structural reforms around the beginning of the next fiscal year,” analysts led by London-based chief currency strategist Thomas Stolper wrote. “This suggests that dollar-yen could start to drift higher in the first quarter next year.”

The yen may weaken to its September low of 100.61 per dollar if it breaches support at 98.59, according to a client note by Richard Adcock, a technical strategist at UBS AG. Support is a level on a chart where buy orders may be clustered.

Trading in over-the-counter foreign-exchange options totaled $33 billion, from $48 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 billion, the largest share of trades at 33 percent. Options on the euro-dollar rate totaled $5.1 billion, or 15 percent.

Dollar-yen options trading was 79 percent more than the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 100 percent above average.

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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