Yen Falls With Franc as Asian Stock Gains Temper Haven Demand

Updated on
  • Latin American currency index recoils from record low
  • Currency volatility climbs to highest since February

The yen fell along with the Swiss franc as demand for haven assets waned after Asian stocks ended their longest losing streak in almost a year and U.S. equity-index futures rose.

The yen weakened for a second day versus the dollar after a volatile start to trading Wednesday, when it swung between being the best and worst Group-of-10 currency. The MSCI Asia Pacific Index of stocks rose for the first time in nine days, after the People’s Bank of China stepped up stimulus. About $8 trillion in market value has been wiped from share markets worldwide since China’s central bank began devaluing the yuan on Aug. 11. A gauge of currency volatility climbed to the highest since February on Tuesday.

“Risk sentiment is still quite fragile but there is some stability and because of that the safe havens have lost some of their appeal,” said Alvin T. Tan, a foreign-exchange strategist at Societe Generale SA in London. “That being said, the yen is still holding below 120 per dollar, so that tells you the market is still nervous and there is lots to be nervous about. The Chinese equities are very, very volatile.”

The yen weakened 0.6 percent to 119.58 per dollar as of 7:16 a.m. New York time, and strengthened 0.2 percent to 136.54 per euro. The franc depreciated 0.5 percent to 94.40 centimes per dollar. It gained 0.3 percent to 1.07835 per euro.

The Japanese and Swiss currencies are still the best performers among major peers since Aug. 11, when China shocked the markets by devaluing the yuan, gaining more than 4 percent each.

Japan’s Topix stock index rebounded from its biggest two-day plunge since 2011. The Shanghai Composite Index swung between gains and losses Wednesday, ending its trading day lower in the steepest five-day drop since 1996.

The euro weakened for a second day versus the dollar as European Central Bank Executive Board member Peter Praet said the outlook for inflation may have worsened and that the central bank was willing to act if needed. 
“Recent developments in the world economy and in commodity markets have increased the downside risk of achieving the sustainable inflation path towards 2 percent,” he told reporters in Mannheim, Germany.

Europe’s shared currency weakened 0.8 percent to $1.1424, after declining 0.9 percent Tuesday.

Fed Odds

The stock rout has prompted futures traders to pare odds that the Federal Reserve will raise interest rates this year to about 46 percent as of Tuesday, the lowest since at least the start of this year. They stood at about 48 percent Wednesday.

“The two policy uncertainties -- one in China and the other one in the U.S. -- will likely continue to weigh on emerging-markets, as well as Antipodean currencies, including the Aussie,” said Nizam Idris, the Singapore-based head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. “There will be a lot of volatility.”

New Zealand’s dollar rose 0.4 percent to 65 U.S. cents, ending a two-day loss. Australia’s dollar climbed 0.1 percent to 71.40 U.S. cents. It reached 70.50 cents on Monday, the lowest since April 2009.

An index of Latin American currencies dropped to a record low on Wednesday before rising 0.1 percent. Mexico’s peso strengthened for the first time in six days versus the dollar.

The Bloomberg Dollar Spot Index, which tracks the currency versus 10 major peers, rose 0.2 percent to 1,197.66. It reached 1,222.94 in March, the highest on record in data going back to 2004.

“We expect EM currencies to continue to be under pressure,” SocGen’s Tan said, referring to emerging-market nations. “Not to the same extent we say in the last week or two, volatility can’t be at this level permanently, it’s too high.” The bank forecasts more gains in the dollar versus Latin American currencies, he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE