Yen Declines to Lowest in a Week on Central Banks

The yen dropped to the lowest level in a week versus the dollar as traders increased bets that global policy makers will keep borrowing costs low for longer, damping demand for haven assets.

The dollar declined earlier after a report showed retail sales were little changed in July on tepid wage growth. Sterling fell to an almost four-month low after the Bank of England highlighted lack of wage growth. Brazil’s real fluctuated after presidential candidate Eduardo Campos died in an airplane crash in the city of Santos. Australia’s dollar rose as consumer confidence improved and retail sales climbed in China. Stocks gained globally.

“The story in the Group of 10 is really a divergence of economic-growth outlooks between competing central banks,” said Mark McCormick, a foreign-exchange strategist at Credit Agricole SA in New York. “In Japan, we had the weak gross domestic product data, which brings back on the table the potential for further easing from the Band of Japan, perhaps in 2015.”

The yen slid 0.2 percent to 102.42 per dollar at 5 p.m. in New York after touching 102.54, the lowest since Aug. 6. Japan’s currency weakened 0.1 percent to 136.88 per euro. The greenback was little changed at $1.3364 per euro. Sterling declined 0.7 percent to $1.6688 and touched $1.6686, the least since April 15.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 developed-market peers, closed little changed at 1,021.18 after earlier falling 0.1 percent. The gauge touched 1,024.67 on Aug. 6, matching the highest since Feb. 11.

The Standard & Poor’s 500 Index (SPX) rose 0.7 percent, the Stoxx Europe 600 Index advanced 0.4 percent and the MSCI World Index added 0.6 percent.

Real, Aussie

Brazil’s currency swung between gains and losses after Campos, 49, died when a Cessna 560XL built to hold nine passengers crashed at about 10 a.m. following an aborted landing because of bad weather, the air force said in statement. The former governor of Pernambuco state was running third in polls ahead of the Oct. 5 presidential election.

The real fell 0.2 percent to 2.2816 per dollar after rising 0.7 percent and dropping 0.6 percent.

The Australian dollar advanced for a second day after Westpac Banking Corp. and the Melbourne Institute said their index of consumer sentiment for August rose 3.8 percent to 98.5, the highest since April. A figure below 100 indicates pessimists outnumber optimists.

Australia’s currency was also supported by economic reports today indicating retail sales and industrial production last month advanced in China, its biggest trading partner. The Aussie added 0.4 percent to 93.05 U.S. cents.

Retail Sales

The greenback dropped earlier as the slowdown in purchases followed a 0.2 percent advance in June, the Commerce Department reported today in Washington. The median forecast of 82 economists surveyed by Bloomberg called for a 0.2 percent gain. Excluding cars, sales rose 0.1 percent.

While the labor market has shown improvement, with employers adding more than 200,000 jobs in each of the past six months for the best performance since 1997, wages have trailed gains. Inflation-adjusted average weekly earnings dropped 0.2 percent in the 12 months through June, the worst performance since October 2012, according to Labor Department data.

“People looked closer at the report and there’s a little bit of concern this report will be revised up -- they’re giving it a pass,” said Richard Cochinos, the head of Americas Group of 10 currency strategy at Citigroup Inc. in New York. “We’re very concerned about German GDP tomorrow, that’s why the gains in euro/dollar are being retraced.”

German GDP

Germany’s economy will contract 0.1 percent in the second quarter, according to the media estimate of 37 economists and strategists in a Bloomberg survey before tomorrow’s report, after expanding a more-than-forecast 0.8 percent gain in the previous three months.

The European Union’s statistics office will say tomorrow that growth in the euro-area economy weakened to 0.1 percent in the second quarter from 0.2 percent in the previous period, according to the median estimate of analysts surveyed by Bloomberg News.

Japan’s currency dropped against most of its 16 major peers after the Cabinet Office said gross domestic product fell an annualized 6.8 percent in the three months through June.

BOJ board members said they will maintain monetary easing for as long as necessary and that the central bank’s measures are having the intended impact, in minutes of their July 14-15 meeting released today.

‘Loose’ Policy

Sterling depreciated after the Bank of England said in its inflation report today that the amount of spare capacity in the economy has fallen as it lowered its forecast for wage growth and said it will put more weight on earnings in its policy assessment. That prompted traders to push back expectations for the timing of the BOE’s first interest-rate increase since 2007.

“Economic reports from Japan, the U.K. and the euro area suggest central banks are not in a hurry to reverse the loose monetary policy,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “That will be a boost to liquidity and higher-yielding assets. That’s perhaps driving a risk-on sentiment.”

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Rachel Evans in New York at revans43@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Kenneth Pringle, Greg Storey

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