Yen Rises Versus Euro on Bets Obama to Call for New Financial Regulations
The yen advanced for a second day against the euro on speculation U.S. President Barack Obama will call for new financial regulations, boosting demand for Japan’s currency as a refuge from global banking-sector turmoil.
The yen rose against all 16 major counterparts before Obama speaks today at New York’s Cooper Union where he will take aim at “risky decisions” made on Wall Street, according to his spokesman. The euro was near a two-week low versus the dollar on concern a 45 billion-euro ($60.3 billion) aid package for Greece will fail to stem its debt crisis. Malaysia’s ringgit led losses in Asian currencies as regional stocks declined.
“The markets are wary over what Obama may say about new financial-industry regulations,” said Yuji Saito, director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. “The mood is leaning toward risk aversion. The bias is for the yen to be bought.”
The yen rose to 124.39 per euro as of 6:55 a.m. in London from 124.77 in New York yesterday, when it gained 0.4 percent. The currency climbed to 92.89 per dollar from 93.19. The euro was at $1.3400 from $1.3390 yesterday, when it fell to $1.3359, the lowest since April 9.
The ringgit fell 0.1 percent to 3.2013 per dollar as the MSCI Asia Pacific Index of shares slipped 0.7 percent.
“Financial reform is something that is born out of an economic collapse that started on Wall Street and spread to Main Street America,” White House press secretary Robert Gibbs said previewing the president’s address.
Obama is giving the address as he and Democratic leaders push to get legislation on financial markets through Congress by next month. The Senate Agriculture Committee yesterday approved derivatives legislation requiring U.S. lenders such as JPMorgan Chase & Co. and Bank of America Corp. to spin off their swaps trading desks.
The Securities and Exchange Commission last week filed a lawsuit against Goldman Sachs Group Inc. for fraud linked to its derivatives trading.
“The Goldman issue will take time to be solved, keeping stocks in a downtrend,” said Minoru Shioiri, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s largest publicly traded bank by market value. “There’s a downside risk for cross currencies against the yen.”
Group of Seven finance ministers are meeting today in Washington where they will discuss currencies, financial markets and the timing of removing fiscal stimulus, a U.S. Treasury Department official said on April 20.
The yen tends to strengthen during economic and financial turmoil because Japan’s trade surplus makes it less reliant on foreign capital.
The euro declined for a third day against the pound after talks started yesterday on an assistance package to Greece including 30 billion euros from the European Union and as much as 15 billion euros from the International Monetary Fund. Finance Minister George Papaconstantinou said Greece may request aid before talks on the loan conditions end in two weeks.
“I don’t see positives coming out of the Greece situation,” said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow Ltd. in Tokyo. “The issue is deep, and negotiations among nations are also complicating the matter. The euro is poised to continue to fall gradually.”
Greece’s deficit of 12.9 percent of gross domestic product is more than four times the EU limit. The IMF yesterday cautioned soaring public debt may have “severe” consequences for the world economy. The extra yield investors demand to hold Greek 10-year bonds instead of German bunds climbed yesterday to the highest level since at least March 1998.
Greek civil servants will strike today in their fourth national walkout this year as surging bond yields puts pressure on the government to activate a European Union bailout and accept more spending cuts.
Investors should sell the euro against the pound on a “less dovish” Bank of England and as concerns ease about the result of the U.K. elections, according to Goldman Sachs.
The euro may slide to the lowest since 2008, Goldman Sachs said. Some Bank of England policy makers showed mounting concern at the prospect of a prolonged bout of quicker inflation, minutes of the April 8 meeting showed yesterday.
“The last minutes sound less worried about growth and more worried about inflation, possibly an indication of a shifting stance in line with our forecasts,” analysts including London- based Thomas Stolper wrote in an e-mail today.
Goldman recommended investors sell the 16-nation currency, targeting a drop to 83 pence, with an order to exit the trade if it closes above 88.50 pence. The euro traded at 86.80 pence from 86.89 pence.