The yen extended monthly gains against emerging-market currencies as growing volatility amid a selloff spurs investors to reverse carry trades while seeking haven assets.
The euro fell to its lowest level versus the dollar since Nov. 22 as a report showed U.S. consumer spending climbed more than forecast in December, diverging from European inflation data as the region’s monetary policy makers meet next week. The currencies of Chile and Hungary dropped against the greenback, extending an emerging-markets rout that began Jan. 23.
“Risk-off bias is again more prevalent heading into the weekend, supporting the Japanese yen and the U.S. dollar,” Robert Lynch, a currency strategist at HSBC Holdings Plc in New York, wrote in a client note. In emerging-market currencies, “there’s been no real improvement and, on the contrary, increasing indications of contagion into other currencies such as the Hungary’s forint, Polish zloty, Chilean peso, which are making new lows.”
The yen strengthened 0.7 percent to 102.04 per dollar at 5 p.m. in New York for a 3.1 percent monthly advance that was the biggest since April 2012. The dollar rose 0.5 percent to $1.3486 per euro, pushing monthly gains to 1.9 percent, the most since February. Japan’s currency appreciated 1.2 percent to 137.63 per euro, having strengthened 5.2 percent since Dec. 31.
The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, was little changed at 1,031.57. It rose 1.2 percent this month, its biggest January gain since 2009.
An equally weighted basket of the so-called BRICS emerging-market currencies, consisting of Brazil, Russia, India, China and South Africa, fell to 105.7 versus Japan’s currency, about matching Jan. 29 when it fell to its lowest level since Nov. 13.
The Chilean peso, forint, ruble and zloty led declines versus the yen today, all weakening at least 1.5 percent.
“We overshot the mark on the global carry trade, which is now seeing a significant unwind,” said Sebastien Galy, senior foreign-exchange strategist at Societe Generale SA. “That leaves the JPY in demand.”
The JPMorgan Emerging Market Volatility Index was at 10.2 percent after reaching 10.4 percent on Jan. 29, the highest since September.
Household purchases, which account for about 70 percent of the economy, rose 0.4 percent, after a 0.6 percent gain the prior month that was larger than previously estimated, Commerce Department figures showed today in Washington. The median projection of 81 economists in a Bloomberg survey called for a 0.2 percent rise. Incomes were unchanged, pushing the saving rate to the lowest level in almost a year.
“The risks to the dollar are skewed to the upside,” Eimear Daly, head of market analysis at Monex Europe Ltd. in London, said before the data. “It seems the Fed wants to get rid of its quantitative easing at this stage and there is little that will put them off their course of $10 billion of tapering each month.”
The U.S. economy expanded at an annual pace of 3.2 percent in the fourth quarter, matching the median forecast in a Bloomberg survey, Commerce Department figures showed yesterday.
The Fed said on Jan. 29 it will trim its monthly bond buying to $65 billion from $75 billion, after cutting it from $85 in December.
Westpac Banking Corp.’s U.S. data surprise index reached the highest since June this month, leading the bank’s New York-based chief currency strategist for the northern hemisphere, Richard Franulovich, to write “the recent improvement in U.S. growth sentiment is living on borrowed time.”
The yen rose as a report showed today that Japan’s December core consumer prices rose 1.3 percent from a year earlier, compared with the median estimate for a 1.2 percent gain in a Bloomberg News survey.
“Better Japanese data suggests reduced chance of more Bank of Japan easing this spring,” said Jane Foley, senior currency strategist at Rabobank International in London. “The trouble in emerging markets could also remain a factor for some weeks and that should provide some support for the yen in the near term.”
The yen rose 5.5 in January, its largest monthly gain since May 2012, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar added 1.9 percent and the euro dropped 0.2 percent. Canada’s dollar is the worst performer, falling 3.3 percent.
The European Union’s statistics office in Luxembourg said consumer prices rose an annual 0.7 percent after a 0.8 percent gain in December. The median estimate in a Bloomberg News survey of economists was for an increase to 0.9 percent.
That’s the fourth consecutive reading of less than 1 percent. The European Central Bank, which meets on Feb. 6, aims to keep inflation at just under 2 percent. The bank may shift policy-rate corridor down by as much as 10 basis points, Deutsche Bank economists Mark Wall and Gilles Moec wrote today in client note.
U.S. data “did show actually a little bit of wage pressure,” Alan Ruskin, the global head of Group of 10 foreign exchange at Deutsche Bank AG, said by phone from New York. “It fits with the softer euro-dollar story and policy-divergence story.”
The ruble fell for a 14th time in 15 days even after the Russian central bank affirmed unlimited market interventions to keep the currency within its target corridor amid the selloff in emerging markets. Central banks from South Africa and Turkey to Argentina have raised interest rates this week to prop up their currencies.
A devaluation of the Argentine peso triggered a 19 percent plunge versus the dollar this month, the most among 173 global currencies tracked by Bloomberg. The rand declined 5.7 percent and Turkey’s lira dropped 4.8 percent.
The New Zealand dollar extended its worst start to a year since 2010 after Reserve Bank Governor Graeme Wheeler said today the “exchange rate remains a considerable headwind for the economy, and the bank does not believe its current level is sustainable in the long run.”
The kiwi fell 1 percent to 80.86 U.S. cents for a 1.6 percent decline this month.