The yen weakened against all of its 16 major counterparts as Japan’s current-account surplus shrank to the smallest on record and U.S. Treasury yields increased, reducing the advantage of owning Japanese assets.
Europe’s 18-nation currency traded at almost a one-month low after European Central Bank Vice President Vitor Constancio said its recent strength has had an impact. ECB President Mario Draghi said last week that policy makers would be “comfortable” with further stimulus next month. India’s rupee reached a nine-month high on speculation exit polls will show a victory for the main opposition party. The pound rallied as the Confederation of British Industry raised its growth forecast, bolstering estimates for a Bank of England interest-rate increase.
“Trade has clearly been deteriorating in Japan -- the trend has been in place for quite some time, it exacerbates the yen’s negative tone,” Omer Eisner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said in a telephone interview. “Treasury yields have been positive for the dollar. We’re seeing it played out in most of the pairs, most so in dollar-yen.”
Japan’s currency fell 0.3 percent to 102.13 per dollar at 5 p.m. in New York, reaching the weakest level since May 6. The euro was little changed at $1.3757 after dropping to $1.3745 on May 9, the lowest level since April 8. The single currency advanced 0.3 percent to 140.50 yen after sliding 1.2 percent last week.
Treasury benchmark 10-year yields increased four basis points, or 0.04 percentage point, to 2.66 percent after reaching 2.57 percent on May 5, the lowest level since February.
The rupee reached the strongest since July versus the dollar before exit polls are allowed to be broadcast in Mumbai. The official results of the national election will be announced on May 16. Opinion polls indicate that the Bharatiya Janata Party will secure the most seats, beating the ruling Congress party that has been mired in corruption scandals and an economic slowdown.
The rupee was little changed at 60.05 per dollar after appreciating to 59.5163, the strongest since July 29, according to prices from local banks compiled by Bloomberg.
The pound rose for the first time in four days against the dollar as the CBI increased its forecast for U.K. growth this year to 3 percent from 2.6 percent.
The U.K. currency climbed 0.1 percent to $1.6868 after advancing to $1.6996 on May 6, the highest since August 2009. Sterling appreciated 0.1 percent to 81.56 pence per euro.
The yen fell to almost a one-week low against the dollar after Japan’s current account surplus shrank more in March than economists forecast.
Consumers bought items such as refrigerators and computers before the 3 percentage point tax rise to 8 percent on April 1. The increase in the levy will contribute to an estimated 3.3 percent contraction in the economy this quarter, according to economists surveyed by Bloomberg. The Bank of Japan will expand monetary stimulus by year-end, according to three-quarters of analysts in a separate survey.
“Yen weakness is basically helped by Japan’s current account surplus,” said Masafumi Takada, a New York-based director at BNP Paribas SA. “U.S. yields are creeping up a bit after the 10 year once again held its 2.57 level, and the market is a bit overbought Treasuries.”
The yen has retreated 4.6 percent in the past six months, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar weakened 1.6 percent and the euro climbed 0.7 percent.
The euro exchange rate has a material impact on inflation, Constancio said at a conference in Vienna. “If we take inflation that it was in mid-2012 until now, we estimate that the effect of the appreciation of the euro since then can explain a reduction of inflation in the euro area by 0.5 percentage point,” he said.
The shared currency decline 0.8 percent last week, the most since March 21, after the May 8 ECB policy meeting and Draghi’s news conference.
The shared currency is on the “defensive” versus the dollar after daily and weekly key reversal patterns were formed last week, according to George Davis, chief technical analyst in Toronto at Royal Bank of Canada’s RBC Capital Markets unit.
The focus is on trend lines at $1.3725 and $1.3686, which are support targets, he wrote today in a note. “A return above $1.3816 will be required at a minimum in order to neutralize last week’s bearish-price action,” he said.
China’s yuan fell as the central bank cut its reference rate to an eight-month low after President Xi Jinping said the nation needs to adapt to slower growth.
The People’s Bank of China reduced the daily fixing by 0.07 percent to 6.1625 per dollar, the weakest level since Sept. 9. China needs to adapt to a “new normal” for the pace of economic growth and remain “cool-minded” amid a slowdown, Xinhua News Agency report cited Xi as saying in a May 10 report.
“The yuan is likely to stay under pressure on continued dollar strength,” said Bruce Yam, a Hong Kong-based foreign-exchange strategist at Sun Hung Kai Forex. “China has not yet shown signs of strong recovery, so it’s more likely for the yuan to drop further amid these pessimistic views.”
The currency fell 0.15 percent, the most since April 24, to close at 6.2375 per dollar in Shanghai, China Foreign Exchange Trade System prices show. The spot rate was 1.2 percent weaker than the fixing, within the 2 percent band.
To contact the editors responsible for this story: Dave Liedtka at email@example.com Paul Cox, Kenneth Pringle