Yen Near Month Low as Euro Fund Agreement Damps Demand for Refuge Assets
The yen was 0.4 percent from a one- month low against the dollar after euro-area finance ministers agreed to extend the capacity of the European Financial Stability Facility for indebted countries.
Japan’s currency also weakened after Luxembourg Prime Minister Jean-Claude Juncker said yesterday the finance chiefs of the region’s 17 nations agreed to work on boosting the International Monetary Fund’s resources. The Dollar Index held a two-day decline before U.S. reports forecast to show improvements in employment and manufacturing. South Korea’s won extended a monthly loss against the greenback after the nation’s industrial output slipped in October.
“Policy makers are taking various measures to contain the crisis,” said Kengo Suzuki, a foreign-exchange analyst in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest bank by market value. “Optimism toward the finance-minister meeting in Europe is resulting in the selling of the yen.”
The yen was little changed at 77.94 per dollar as of 6:55 a.m. London time from 77.93 in New York yesterday, when it slid to as low as 78.29, the least since Nov. 2. It traded at 103.82 per euro from 103.77. The U.S. currency was at $1.3319 against the euro from $1.3317.
Europe’s common currency has fallen 3.9 percent against the dollar and has declined 4.2 percent versus the yen this month.
The dollar has gained 6.3 percent in the past month, the best performance among the 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The yen has risen 1.4 percent, the indexes show.
Euro-area ministers agreed to a plan to guarantee as much as 30 percent of new bond issues from troubled governments and to develop investment vehicles that would boost the facility’s ability to intervene in primary and secondary bond markets.
The EFSF bond guarantees and investment vehicles can run simultaneously and could be functioning by early next year, according to a document released by the fund.
The fund’s capacity will be “very substantial” and will be supplemented by the IMF, Luxembourg’s Juncker said. The ministers “agreed to rapidly explore an increase of the resources of the IMF through bilateral loans,” Juncker said, “so that the IMF could adequately match the new firepower of the EFSF and cooperate more closely with it.”
The 17-nation region’s finance ministers will be joined today by their counterparts from the rest of the European Union for a meeting in Brussels. European heads of government will meet on Dec. 9 in the Belgian capital.
The Dollar Index (DXY), which tracks the greenback against the currencies of six major U.S. trading partners, was at 79.097 today from 79.069 yesterday, when it dropped 0.2 percent. It has gained 3.4 percent this month.
“We’ve seen the dollar get sold amid strong U.S. economic data as risk appetite improved,” said Mizuho’s Suzuki. “A good number on employment is likely to prompt dollar selling.”
A private report based on payrolls will probably show U.S. jobs increased by 130,000 this month after rising by 110,000 in October, according to the median estimate of economists surveyed by Bloomberg News. ADP Employer Services will release the figures today.
The Institute for Supply Management-Chicago Inc. may say today its business barometer increased to 58.5 in November from 58.4 last month, a separate survey showed.
Demand for the euro was limited amid concern the sovereign- debt crisis that started in Greece is spreading to larger economies. Germany was unable to get bids for 35 percent of the 10-year debt it sold on Nov. 23.
“I’m bearish” on the euro, said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “I think the tail risk for failure is larger than people think,” he said of the bond auctions.
Five-year credit-default swaps on Spanish and French government bonds climbed to their highest levels last week since at least 2005, according to CMA prices in New York. A gain in the swaps signals deteriorating perceptions of creditworthiness.
South Korea’s currency was set for its biggest monthly loss against the dollar since September after government data showed today the nation’s production fell 0.7 percent in October. That’s the fifth decline this year and compares with a revised 1.2 percent expansion in the previous month.
Finance Minister Bahk Jae Wan said on Nov. 28 the economy is showing signs of slowing in the second half due to global weakness, and the government will place policy priority next year on sustaining growth.
The won traded at 1,142.57 per dollar from 1,145.15 yesterday and is poised for a 2.8 percent slide this month, according to data compiled by Bloomberg.
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