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Yen Advances to 7-Week High on Slowdown Signs; Aussie Declines

Aug. 23 (Bloomberg) -- The yen rose to a seven-week high against the euro as signs the global economy is slowing boosted demand for Japan’s currency as a refuge.

The yen advanced against 15 of its 16 major counterparts before reports this week that are forecast to show slowdowns in U.S. home sales and Japanese export growth. The euro traded near a five-week low against the dollar after European data showed growth in the 16-nation region’s services and manufacturing slowed in August.

“We’re back to tension in the euro zone and uncertainty about the global economy,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. “In this environment we’re likely to see a stronger yen and franc.”

The yen climbed to 108.25 per euro at 8:09 a.m. in New York from 108.83 on Aug. 20, after reaching 108.16, the highest since July 1. It appreciated to 85.17 per dollar from 85.62. Japan’s currency touched 84.73 per dollar on Aug. 11, the strongest since July 1995. The euro fetched $1.2706 from $1.2712 on Aug. 20, when it reached $1.2664, the lowest since July 13.

The Japanese currency extended gains after a Markit Economics index based on a survey of euro-area purchasing managers declined to 56.1 from 56.7 in July. Economists expected a reading of 56.3, according to a Bloomberg News survey. A report showed earlier that manufacturing in Germany, Europe’s biggest economy, also slowed.

Under Pressure

“There appears to be little on the horizon to help the euro,” analysts led by Hans-Guenter Redeker, head of foreign-exchange strategy at BNP Paribas SA, wrote today. “We expect the euro to remain under pressure against the traditional low-yielding currencies,” such as the yen, given Japanese intervention in the currency seems less likely, he wrote.

Sales of existing U.S. homes dropped 12.9 percent to a 4.68 million annual rate in July, according to the median estimate of economists in a Bloomberg News survey ahead of the National Association of Realtors’ report tomorrow. Japan’s shipments abroad advanced 21.8 percent in July from a year earlier, after increasing 27.7 percent in June, according to another Bloomberg survey before the Finance Ministry reports the data on Aug. 25.

‘On the Decline’

“Investor risk appetite is starting the week on the decline, which provides a downward bias to higher-yielding, global growth-sensitive currencies,” John Kyriakopoulos, head of foreign-exchange strategy in Sydney at National Australia Bank Ltd., wrote in a research note today.

The yen has advanced 14.1 percent this year in the biggest gain among developed-world counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The euro has dropped 9.4 percent, while the dollar is up 3.6 percent. The yen typically strengthens in times of financial turmoil as Japan’s trade surplus means the nation doesn’t rely on overseas lenders.

Gains in the yen were sustained after Japanese Chief Cabinet Secretary Yoshito Sengoku said currency intervention wasn’t discussed between Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa in their telephone conference today. Sengoku said Kan and Shirakawa exchanged views on the economic situation and the foreign-exchange market.

“We put the risk of Bank of Japan intervention currently in about one in four,” said Adam Cole, head of global currency strategy at RBC Capital Markets, in an interview with Bloomberg Television. “I am bullish on the yen, but I’ll rather play that in terms of euro-yen than dollar yen.”

Australian Election

The yen will strengthen to “materially below” 100 per euro, Cole said.

The Australian dollar fell against the yen as neither Prime Minister Julia Gillard nor opposition leader Tony Abbott obtained an outright majority in the Aug. 21 vote, meaning one side must win negotiations with independent lawmakers to form a government.

The Australian dollar slipped 0.3 percent to 76.30 yen as the ruling Labor Party won 72 seats in the House of Representatives while the Liberal-National coalition won 70 seats, the Australian Electoral Commission said on its website citing about 75 percent of the total vote counted.

The dollar erased declines against most of its major counterparts based on speculation SABMiller Plc may make a 7 billion-pound ($10.9 billion) bid for the beer division of Foster’s Group Ltd., Australia’s biggest brewer. Stocks in Europe rose.

“The dollar sold off initially on the back of the results, but has steadied on expectations that a resolution can be attained soon,” Geoffrey Yu, an analyst with UBS AG in London wrote in a note to clients today. “In addition, fresh M&A talk in favor of Australia has supported the currency.”

The Swiss franc rose 0.1 percent to 1.3157 per euro, nearing the 1.3074 record from July 1. Swiss central bank President Philipp Hildebrand said this weekend that the leeway to counter possible gains by the Swiss franc through currency purchases is limited by the bank’s inflation mandate, according to a report in Tages-Anzeiger.

“We’d reached our limits at the point where a possible additional expansionary monetary policy would spark inflation over the longer term,” Hildebrand told the newspaper in an interview published today. A “lot hinges on the actual situation” such as the state of the Swiss economy and the inflation outlook when assessing interventions, he said.

To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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