Yen Rises Versus Most Majors on European Bank Stress

The yen rose against most of its 31 major peers as concern stress in Portugal’s banking sector may spread through the euro area prompted demand for safer assets.

The dollar posted its biggest weekly loss versus the Japanese currency since April after minutes of the Federal Reserve’s June meeting failed to provide additional insight on the pace of rate increases. The Canadian dollar slumped after employment unexpectedly fell last month. South Korea’s won slid for a sixth day amid speculation the central bank will cut interest rates.

“Portugal is the latest thing to worry about, but it’s not big enough to really shake the market too bad,” Chris Gaffney, senior market strategist at EverBank Wealth Management in St. Louis, said in a phone interview. “Investors will look to the yen as safe haven.”

The yen was little changed at 101.30 against the dollar at 5 p.m. in New York, having gained 0.7 percent this week, the most since the period ended April 11. The Japanese currency closed at 137.90 per euro after appreciating to 137.50 yesterday, the strongest since Feb. 6. The dollar was at $1.3608 per euro.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, rose 0.1 percent to 1,006.89, trimming a fourth decline in five weeks to less than 0.1 percent.

Pound Wagers

Britain’s pound fell to extend its first weekly decline against the dollar since May on signs that momentum in U.K. economic growth is starting to slow.

Futures traders’s bets that the pound will gain against the dollar fell from the highest since 2007, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a rise of the U.K. currency compared with those on a fall -- net longs -- was 41,639 on July 8, down from 56,412 the week before.

Sterling declined 0.1 percent to $1.7116 after touching $1.7180 on July 4, the highest level since October 2008. It fell 0.3 percent on the week.

The Canadian dollar, known as the loonie, fell 0.8 percent to C$1.0734 per U.S. dollar after official data showed employment dropped by 9,400 and the jobless rate rose to 7.1 percent from 7.0 percent. Twenty economists surveyed by Bloomberg News projected a 20,000 job increase and no change in the unemployment rate, according to the median forecasts.

‘Modest’ Growth

“We’re sitting with employment growth right now that is modest at best,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia, by phone from Toronto. “It’s particularly important for how it feeds into the Bank of Canada next week, and it’s likely to feed the dovish tone coming from Governor Poloz. Having employment still moderate at best would suggest there’s still slack in the economy and inflationary pressures won’t rise.”

The won slid versus all of its 16 major counterparts except Canada’s dollar today after the Bank of Korea yesterday reduced its growth outlook for this year and said inflation was picking up more slowly than it had anticipated. There’s a possibility of a rate cut this quarter, Nomura Holdings Inc. and Goldman Sachs Group Inc. said in reports yesterday.

The won slid 0.5 percent to 1,018.92 per dollar, extending this week’s decline to 1 percent.

Low Volatility

JPMorgan Chase & Co.’s Global FX Volatility Index slipped to 5.44 percent after climbing 11 basis points, or 0.11 percentage point, yesterday to 5.57 percent. The gauge declined to 5.29 percent on July 3, the lowest close since Bloomberg started collecting the data in 1992.

The yen rose against most major peers as Banco Espirito Santo SA sought to reassure investors after a missed payment on short-term debt by a member of the Portuguese financial group roiled global markets, reawakening speculation the euro region remained vulnerable to financial shocks. The nation’s central bank said the lender is protected.

Japan’s currency rose 0.7 percent in the past week according to data by Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The greenback dropped 0.2 percent and the euro declined 0.1 percent. New Zealand’s dollar jumped 0.7 percent to lead gainers, while the loonie’s 1 percent slump paced decliners.

‘Contagion Effects’

“Foreign-exchange investors are more cautious about to what extent there’ll be contagion effects, and where are the dead bodies floating out there,” said Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York. “It’s caused risk aversion.”

Minutes of the Federal Open Market Committee’s June 17-18 meeting released two days ago offered no new clues on the timing of an interest-rate increase, with officials saying policy depends most “on the evolution of the economic outlook.” Fed Chair Janet Yellen is scheduled to testify before Congress two days next week.

There’s a less that 50 percent chance the Fed will raise its benchmark rate to at least 0.5 percent by July next year, down from 62 percent odds on July 4, according to data compiled by Bloomberg based on fed funds futures.

“There’s a modest downward bias on the dollar -- the Fed hasn’t acknowledged the significant improvement in the labor market,” Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, said in a phone interview. “They’re looking increasingly behind the curve in terms of their policy stance.”

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