Yen Weakens From 2-Month High as Refuge Bid Eases; Aussie Rises

The yen weakened from its strongest level in more than two months against the dollar as a rally in emerging-market currencies damped demand for haven assets.

The U.S. currency declined against the Turkish lira and South African rand amid speculation that the rout in emerging markets during the past two weeks was overdone as stocks rallied and Treasuries declined. Australia’s dollar rose the most since June versus the greenback after the nation’s central bank dropped its reference to the currency being too strong. The euro fell against most of its 16 major peers amid speculation the European Central Bank may take measures to stimulate the economy that tend to debase the currency.

“You’ve had a pattern of increased risk aversion, but that came off today and hurt the yen,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc., said in a phone interview. “At some point, people were going to be willing to get long emerging markets again.” A long position is a bet an asset will rise in value.

The yen weakened 0.7 percent to 101.64 per dollar at 5 p.m. New York time, after appreciating to 100.76, the strongest level since Nov. 21. It dropped 0.6 percent to 137.41 per euro. The 18-nation shared currency was little changed at $1.3519 after touching $1.3477 yesterday, the weakest level since Nov. 22.

Risk Measures

The Standard & Poor’s 500 Index advanced 0.8 percent after the gauge slid 2.3 percent yesterday. Benchmark U.S. 10-year notes fell, pushing yields up five basis points, or 0.05 percentage point, to 2.63 percent.

Emerging-market currencies rose 0.9 percent to 85.8 after falling to record low of 86.06 yesterday, according to JPMorgan Emerging Markets Currency Index.

The Turkish lira appreciated 2 percent to 2.2382 per dollar, paring this year’s drop to 4 percent.

Turkey’s central bank provided one billion liras ($445 million) in its one-week repurchase agreement auction today, the lowest amount in six days. The cost of funding for banks rose to 9.26 percent on Jan. 29, the highest level since June 2012, according to central bank data. Policy makers raised the bank’s benchmark interest rate to 10 percent last month from 4.5 percent, citing the lira’s slump and inflation risks.

Turkish Funding

“The average cost of funding may exceed 10 percent if the central bank cuts its funding at the one-week repo auction,” Ali Cakiroglu, a strategist at HSBC Asset Management in Istanbul, wrote in an e-mailed note. The central bank provided 33 billion liras in one-week repo six days ago at a 10 percent annualized rate.

South Africa’s rand gained as a halt in momentum in U.S. manufacturing costs casts doubt on the Federal Reserve’s plan to curb monetary stimulus. The currency appreciated 1.6 percent to 11.0983 per dollar, rising the most since Jan. 30.

The Czech koruna, Bulgarian lev and Chinese yuan were the only emerging-market currencies out of 24 tracked by Bloomberg to decline.

The Aussie climbed against all of its 16 major peers after RBA Governor Glenn Stevens kept the overnight cash-rate target at 2.5 percent, saying in a statement “the most prudent course is likely to be a period of stability in interest rates.” The Australian dollar’s decline, which took it to the weakest level since July 2010 last month, “will assist in achieving balanced growth,” he said, dropping references in past statements that the currency was “uncomfortably high.”

The currency added 2 percent to 89.25 U.S. cents.

Aussie Strength

“They have dropped the reference to the exchange rate being uncomfortably high, so that’s definitely more hawkish,” Divya Devesh, a foreign-exchange analyst at Standard Chartered Plc in Singapore, said of the RBA statement. “While earlier they were keeping the door open on more easing, now they are trying to say it’s the end of the current easing cycle.”

The euro slipped for the seventh time in eight days against the dollar after ECB President Mario Draghi was said to consider ending the sterilization of crisis-era bond purchases, which would add liquidity into the region’s financial system. The central bank meets Feb. 6.

“The policy debate at the ECB is gaining some momentum, which is going to be a negative for the euro,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “We see euro rebounds as providing a selling opportunity. We are looking for an initial move down to $1.33.”

The yen strengthened 5.5 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 1.4 percent and the euro slipped 0.5 percent.

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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