Yen Advances Most in 18 Months on Safety Demand; Ruble Tumbles

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The yen gained the most versus the dollar in 18 months as investors sought safety with China tightening lending rules and political turmoil increasing in Greece.

Japan’s currency rose versus all but one of its 31 major peers. The ruble fell even amid speculation President Vladimir Putin will impose capital controls to stem its 39 percent plunge this year. Brazil’s real climbed from a three-week low as the central-bank president didn’t rule out extending an intervention program supporting the currency. The greenback slipped from the strongest level in two years versus the euro. Colombia’s peso tumbled.

“The day started with big risk-off sentiment, although we’ve pared some of the losses,” said Fabian Eliasson, who works in foreign-exchange sales at Mizuho Financial Group Inc. in New York. “The selloff was initiated by China and then Greece in the middle of this.”

The yen gained 0.8 percent to 119.69 per dollar at 5 p.m. New York time after adding 2.3 percent, the biggest gain since June 2013. It appreciated 0.6 percent yesterday. The yen strengthened 0.4 percent to 148.11 per euro. The dollar weakened 0.5 percent to $1.2374 per euro after touching $1.2247 yesterday, the strongest level since August 2012.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 trading partners, fell 0.4 percent to 1,115.72. It closed on Dec. 5 at 1,122.34, the highest since March 2009.

Volatility Jumps

Currency volatility reached the highest in more than a year. JPMorgan Chase & Co.’s Global FX Volatility Index touched 9.58 percentage points, the highest level since September 2013.

The ruble’s drop highlighted Russia’s failure to stabilize the currency even after raising benchmark borrowing costs four times this year and spending more than $90 billion in foreign reserves. The currency sank 0.6 percent to 54.0490 per dollar following a 2.4 percent drop yesterday.

Colombia’s peso led declines among the dollar’s 31 major peers, dropping 1.3 percent after local markets were closed yesterday for holiday.

Brazil’s real climbed after central-bank President Alexandre Tombini told reporters the central bank has two weeks to watch the market and evaluate the situation. The real dropped earlier as Tombini told lawmakers that the currency swap offerings authorized through the end of 2014 have fully achieved their goals.

The currency slipped to a three-week low before trading up 0.2 percent at 2.5960 per dollar.

‘Risk Reduction’

China’s yuan dropped for a second day as the world’s second-biggest economy stepped up efforts to curb the expansion of opaque local-government debt, sparking a tumble in riskier bonds and fueling the stock market’s biggest retreat in five years.

“The measures announced that triggered the move are perceived by the market as a tightening of financial conditions,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “There’s a risk-reduction taking place -- you may see a little bit of corrective moves in the recent trends.”

The yuan weakened as much as 0.6 percent, according to China Foreign Exchange Trade System prices, the most since March 20, before trading 0.2 percent lower at 6.1855 per dollar.

Greek stocks tumbled the most since 1987 and bonds fell after Prime Minister Antonis Samaras gambled his political future on bringing forward a parliamentary vote on a new head of state.

Japan’s currency rose as the Nikkei 225 Stock Average fell for the first time in eight days. Crude futures slid to $62.25 a barrel, the lowest level since July 2009.

Yen Reversal

The yen’s 14-day relative-strength index versus the dollar rose for the first time since Oct. 1 above 30, the level that some traders see as a signal an asset may have declined too far, too fast and is due to reverse course. It was at 33.

The dollar weakened against most major peers as dropping energy prices boosted speculation the Federal Reserve will delay raising interest rates amid a lower outlook for inflation. The Federal Open Market Committee announces its latest policy decision on Dec. 17.

Any delay in a rate increase will “temporarily offset the inflationary impact from the tightening U.S. labor market, which may act as a dampener on U.S. dollar demand in the near term,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “However, the case for a stronger U.S. dollar alongside higher short-term U.S. rates still remains in place.”

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