The yen rose to the highest level in a week against the dollar as President Barack Obama and European leaders discussed the deepening of sanctions against Russia, underpinning haven demand.
The ruble fell to its weakest level in 10 days against the central bank’s target basket of dollars and euros as Standard & Poor’s cut Russia’s sovereign-debt rating. India’s rupee rebounded from a one-month low as corporations repatriated earnings. The dollar posted a weekly loss versus the euro before the Federal Reserve meets on policy next week, while a gauge of currency volatility fell to the lowest since 2007.
“We’re going to see more downgrades of Russia and Russian corporates,” Douglas Borthwick, the head of foreign exchange at Chapdelaine & Co. in New York, said in a phone interview. “There’s some dollar-yen selling on the back of” the geopolitical tension.
The yen strengthened 0.2 percent to 102.16 per dollar at 5 p.m. New York time after reaching 101.96, the highest since April 17. It advanced 0.3 percent this week. Japan’s currency appreciated 0.2 percent to 141.30 per euro. The dollar closed little changed at $1.3834 per euro and is down 0.2 percent on the week.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, was at 1,011.02 after rising to 1,012.74 yesterday, the highest level since April 8.
JPMorgan Chase & Co.’s Group of Seven Volatility Index dropped five basis points, or 0.05 percentage point, to 6.22 percent, the lowest since July 2007. The gauge jumped to 26.55 percent in October 2008 during the global financial crisis.
India’s rupee led gains among the dollar’s 31 major peers on speculation exporters repatriated earnings to benefit from the exchange rate after the currency approached a one-month low.
“The rupee has advanced as exporters sold the greenback from 60.08 levels and also as stop-losses were triggered,” said Amogh Moghe, a Mumbai-based currency trader at Mecklai & Mecklai Ltd.
The currency gained 0.8 percent to 60.6250 per dollar, according to prices from local banks compiled by Bloomberg. Mumbai markets were shut yesterday for parliamentary elections.
Brazil’s real fell the most among the 31 major dollar peers after the central bank refrained for the first time in three weeks from calling an auction to roll over foreign-exchange swaps, adding to bets it is easing support for the currency.
The real declined 1.3 percent to 2.2436, sliding for the first time in three days to wipe out a weekly advance.
S&P cut Russia’s sovereign-debt rating to BBB-, the lowest investment grade. The rank, on par with Brazil and Azerbaijan, has a negative outlook. The company said further downgrades are possible if economic growth deteriorates and the conflict in Ukraine sparks wider sanctions.
The ruble slid 0.8 percent to 42.2707 versus the central bank’s target basket after falling 0.3 percent yesterday.
The currency stayed lower even after the central bank increased its key interest rate to 7.5 percent from 7 percent. All but one of 23 economists in a Bloomberg survey predicted policy makers would keep the rate unchanged. One projected an increase to 8 percent.
“The rate increase may discourage speculators somewhat in the near term, but I don’t think it changes the big picture,” said Bhanu Baweja, head of emerging-market strategy at UBS AG in London. “If fears of Russia invading eastern Ukraine do come to fruition, this rate hike will not be enough to stabilize the currency.”
The yen gained for a third day as Obama spoke on a conference call today with leaders from Germany, France, the U.K. and Italy, a day after Kerry said Russia is running out of time to ease tensions in Ukraine.
German Chancellor Angela Merkel said G-7 nations are preparing new measures against Russia even as that country’s troops began military exercises on its neighbor’s border and explosions in two Ukrainian cities wounded eight people.
“The market is clearly concerned about the conflict, but the impact appears to be more visible in stock markets than in the currency market,” said Kit Juckes, a global strategist at Societe Generale SA in London. “I don’t think the forex market is being complacent. It’s just that it can’t afford in a zero-rate world to bet against the idea that this is probably not going to escalate beyond a war of words.”
The MSCI Emerging Markets Index lost 1.1 percent and Russia’s Micex Index fell a fifth day. The Stoxx Europe 600 Index and the Standard & Poor’s 500 Index slid 0.8 percent.
Futures traders decreased their bets that the yen will decline against the greenback. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 67,243 on April 22, compared with net shorts of 68,716 a week earlier.
The Japanese currency advanced 2.7 percent this year, the third-best performer among 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 0.7 percent and the euro was little changed.
The Fed meets April 29-30, when economists predict the central bank will cut monthly asset purchases by another $10 billion to $45 billion. Policy makers will continue to taper at that pace until ending the program at its Oct. 28-29 meeting, according to a Bloomberg survey.