Yen Weakens to 6-Month Low on Risk-Linked Selling; Pound Rises

The yen fell to a six-month low versus the dollar after reports showed manufacturing in China, Europe and the U.K. expanded last month, driving demand for risk and underscoring Japan’s currency’s role in the carry trade.

Japan’s currency weakened against most of its 16 major counterparts as Governor Haruhiko Kuroda said the Bank of Japan will keep monetary policy accommodative until inflation is stable at 2 percent. The pound reached the strongest level since January against the euro after a gauge of U.K. manufacturing increased in November at a faster pace than analysts forecast. New Zealand’s dollar rallied, while Canada’s currency traded at the weakest level since October 2011.

“I’ve been bullish dollar for the past few weeks against most currencies and the yen is certainly is doing what he government wants it to do,” Fabian Eliasson, head of U.S. currency sales in New York at Mizuho Financial Group Inc., said in a phone interview.

The yen fell 0.5 percent to 102.94 per dollar at 5 p.m. New York time, touching the least since May 23. Japan’s currency fell 0.1 percent to 139.40 per euro after depreciating to 139.71 on Nov. 29, the weakest level since October 2008. The euro dropped 0.4 percent to $1.3542.

Futures Positions

Futures traders increased their bets that the yen will decline against the U.S. dollar for a fourth week, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 123,202 on Nov. 29, the most since July 2007, compared with net shorts of 112,216 a week earlier.

Contracts on the euro against the dollar swung to a net-short position of 431 as of Nov. 29, from 8,911 net long the previous week.

Hungary’s forint slid 0.8 percent to 303.78 euro and touched 303.98, the weakest since April 4. The country’s lack of inflation pressure gives the central bank room to continue easing monetary policy after 16 consecutive months of interest-rate cuts, Magyar Nemzeti Bank President Gyorgy Matolcsy said Nov. 28.

The real dropped to a three-month low as Brazil’s state-run oil company indicated it will keep subsidizing fuel prices, spurring speculation that government interference in the economy will hurt investment. The currency depreciated 0.7 percent to 2.3533 per dollar.

Rand Drops

The rand depreciated 1 percent to 10.2741 per dollar. South Africa’s deficit shrank to 6 percent of gross domestic product from 6.5 percent in the previous three months, after data were revised to include trade with neighboring countries, the central bank may report tomorrow, according to the median estimate of 10 economists in a Bloomberg survey.

Deutsche Bank AG’s Group-of-10 FX Carry index rose to 113.7 percent, the highest since Nov. 25. The measure fell 1.4 percent last month, snapping two periods of gains. In carry trades, investors sell the currency of a nation with low borrowing costs and buy assets where returns are higher.

“The yen continues to be under pressure,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “It’s still the preferred risk-funding currency.”

After depreciating through support in the 101.50-to-101.55 per greenback area, the Japanese currency will test its 2013 low of 103.74, according to Niall O’Connor, a New York-based technical analyst at JPMorgan. A decline to that level, reached on May 22, would match the weakest since October 2008.

Aussie Swings

Australia’s dollar was little changed after rallying from almost its weakest level in three months and New Zealand’s currency rose for a second day. The Reserve Bank of Australia meets today, when analysts predict policy makers will keep interest rates unchanged at 2.5 percent.

The Aussie rose as much as 0.7 percent versus the greenback after falling as low as 90.56 on Nov. 29, the least since Sept. 4. New Zealand’s currency climbed 0.8 percent to 81.86 U.S. cents.

“We’re seeing some of the commodity currencies doing better,” Serebriakov said. “The kiwi and Aussie are the bounce-back stories today. Stronger data from China certainly helped both.”

The manufacturing Purchasing Managers Index for China, the world’s second-biggest economy, held at 51.4 last month, beating analyst estimates, according to government data yesterday. Figures released today by HSBC Holdings Plc and Markit Economics also indicated a reading above the 50 level that divides expansion from contraction.

Euro Reading

A similar gauge for the euro region also confirmed manufacturing expanded in November at the fastest pace in more than two years.

A U.K. factory index expanded to 58.4, the highest since February 2011, and more than the median forecast of 56.1 in a Bloomberg survey.

The pound climbed 0.3 percent to 82.79 pence per euro after appreciating to 82.53, the strongest since Jan. 11.

The pound has jumped 7.5 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes amid speculation a strengthening economy will prompt the Bank of England to increase borrowing costs. The euro appreciated 4 percent, while the dollar is little changed.

Dollar Gains

The dollar climbed as the Institute for Supply Management’s factory index rose to 57.3 in November from 56.4 a month earlier, the Tempe, Arizona-based group’s report showed today. The median projection in a Bloomberg survey of 77 economists called for a drop to 55.1.

Economists predict a Dec. 6 Labor Department report will indicate the world’s biggest economy added 180,000 jobs in November after a 204,000 gain in the previous month.

Federal Reserve officials said they may reduce their $85 billion in monthly bond purchases “in coming months” as the economy improves, according to minutes of their October meeting released last month.

“They’ve been pretty clear that it’s data dependent,” Mizuho Financial Eliasson said. “It’s correct to assume that it makes better case for earlier.”

The Canadian dollar dropped as much as 0.4 percent to C$1.0654, the weakest since Oct. 4, 2011. The currency fell for the second day before a central bank meeting Dec. 4 where policy makers are projected to hold the benchmark interest rate at 1 percent.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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

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