The yen and the Swiss franc rallied as a selloff in emerging-market currencies deepened, stoking demand for haven assets.
The yen strengthened against all but two of 174 global peers as increased scrutiny of credit risks in China supported demand for Japanese assets. Argentina’s peso was the fourth worst global performer after a 13 percent slump yesterday as the country devalued the currency. The dollar was underpinned by speculation the Federal Reserve will continue to scale back stimulus. Turkey’s lira slid to a record and Russia’s ruble fell to a five-year low.
“We’re having a risk-off move,” Douglas Borthwick, the head of foreign exchange at Chapdelaine & Co. in New York, said in a phone interview. “Japan and Switzerland are both very interested in weakening their currency, so you’d expect that any sort of pullback in dollar-yen or dollar-Swiss would be bought into, which is why they’re seeing strength today.”
The yen rose 0.9 percent to 102.31 per dollar at 5 p.m. New York time after reaching 102, the strongest level since Dec. 6. It appreciated 1 percent to 139.98 per euro. The franc gained 0.3 percent to 89.45 centimes per dollar and added 0.4 percent to 1.2235 per euro.
Traders and investors are monitoring whether turmoil is seeping into markets of the world’s biggest economies. Measures of emerging-market foreign-exchange volatility versus those of developed countries are diverging, with the gap between indexes increasing to the biggest spread since September.
Three-month implied volatility for the seven biggest developing country currencies rose to 9.78 percent, the highest since Oct. 3, compared with 8.34 percent for industrialized nations, the highest in three weeks, according to JPMorgan Chase & Co. indexes.
Emerging-market currencies slid as anti-government protests in Ukraine and Thailand and a corruption investigation in Turkey involving Prime Minister Recep Tayyip Erdogan’s cabinet undermined investors’ confidence in the political stability of the countries.
A custom Bloomberg index with equal weightings of the dollar’s 20 most-traded emerging market peers declined for a 10th straight day. The gauge fell as much as 0.5 percent to the lowest level since it was created in September 2011. The index slipped 1.2 percent this week.
The Argentine peso fell 1.5 percent versus the dollar after tumbling the most in 12 years yesterday as the country’s central bank scaled back attempts to support the currency with dollar sales.
The Turkish lira fell 1.9 percent versus the dollar, while the Russian ruble posted a 1.3 percent decrease. South Africa’s rand fell 0.9 percent and the Indian rupee slid 1.2 percent.
An equally weighted basket of the so-called BRICS emerging-market currencies, consisting of Brazil, Russia, India, China and South Africa, fell to 93.7, its lowest level since Sept. 5.
The only global currencies to gain versus the yen were the Djiboutian franc and Guyanese dollar.
The China Banking Regulatory Commission ordered its regional offices to increase scrutiny of credit risks in the coal-mining industry, according to two people with knowledge of the matter. The regulator issues such alerts for matters that it judges may pose significant risks to banks and not on a regular basis, the people said.
“The trouble in emerging markets should benefit the U.S. dollar,” said Bhanu Baweja, the head of emerging-market cross-asset strategy at UBS AG in London. “There may be dollar demand in the market to pay back short-term loans which will now be called rather than refinanced.”
The dollar rose against most of it major peers amid speculation the Federal Reserve will decide to reduce stimulus at a meeting next week even after data showing signs that economic growth is slowing.
The Federal Open Market Committee will reduce monthly asset purchases by $10 billion at each meeting to end the program this year, according to the median forecasts of economists in a Bloomberg survey. It next meets on Jan. 28-29.
The number of Americans continuing to receive jobless benefits rose to 3.06 million in the period ended Jan. 11, the most since July, the Labor Department said yesterday. Economists surveyed by Bloomberg News predicted a decline to 2.9 million. The economy added 74,000 jobs in December, according to government data on Jan. 10, versus a gain of 197,000 projected in a Bloomberg survey.
The yen is the best performer among the dollar’s 16 major peers this year, rising 2.9 percent. That follows an 18 percent slide in 2013, the most among Group of 10 currencies. The euro fell 0.5 percent this year and the rand dropped 5.4 percent to lead decliners.
“This weakness that we’ve seen in EM currencies appears to be contributing to strength in traditional safe-haven Group of 10 currencies, like the yen and Swiss franc,” Robert Lynch, a currency strategist at HSBC Holdings Plc in New York, said in a phone interview. “The price action in recent days tells you that the potential for contagion has not been diminished.”
Trading in over-the-counter foreign-exchange options totaled $113 billion, from $110 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $29 billion, the largest share of trades at 26 percent. Options on the dollar-Chinese yuan rate totaled $15 billion, or 13 percent.
Dollar-yen options trading was 129 percent more than the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis. Dollar-yuan options trading was 190 percent above average.
Trading in euro-greenback options fell 5.4 percent against its daily average, while Australian dollar-yen options rose by 1,041 percent.