Yen Climbs as Emerging-Market Currencies Slide; Forint Tumbles

The yen strengthened the most in almost two months against the euro and dollar as a slide in emerging-market currencies boosted demand for safer investments.

Japan’s currency gained versus all of its 16 major peers, while the Swiss franc rose against each one but the yen. The euro reversed a loss versus the dollar as a measure of volatility touched a two-month high. The Hungarian forint fell to a four-month low against the euro after the central bank cut the benchmark rate by more than economists expected. India’s rupee and Turkey’s lira both dropped to record lows as global stocks slumped amid escalating tension in Syria.

“Political headlines are dominating -- with risk-aversed markets such as the yen and the Swiss franc being the strongest among Group of 10,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a telephone interview. “We’re starting to see signs of real outflows again” in emerging markets.

The yen rose 1.3 percent to 129.96 per euro at 5 p.m. in New York after adding 1.4 percent, the biggest gain on an intraday basis since July 3. Japan’s currency appreciated 1.5 percent to 97.03 per dollar, the largest advance since July 10. The dollar fell 0.2 percent to $1.3393 versus the euro after gaining 0.3 percent.

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major peers, fell 0.3 percent to 1,024.93 after climbing to 1,031.37 on Aug. 22, the highest since Aug. 2.

The Standard & Poor’s 500 Index of U.S. stocks dropped 1.6 percent and the Stoxx Europe 600 Index fell 1.8 percent.

Forint Drops

Hungary’s Magyar Nemzeti Bank reduced the two-week deposit rate to a record-low 3.8 percent from 4 percent after 12 months of quarter-point cuts. Sixteen of 22 economists in a Bloomberg survey forecast a cut to 3.9 percent.

The forint depreciated as much as 1.1 percent against the euro to 301.90, the weakest since April 29.

Hungarian central bank’s “move was larger than expected,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “An ongoing easing should continue to remain a headwind for the forint.”

India’s rupee slumped 2.9 percent to 66.190 per dollar, surpassing the previous low set on Aug. 22. Turkey’s lira fell as much as 2.2 percent to 2.0398, a record low according to Bloomberg data starting in 1981. Indonesia’s rupiah tumbled 0.7 percent to 10,925 per dollar after reaching 10,926, the least since April 2009.

Fed Buying

The effects of the Fed’s potential tapering of its $85 billion in monthly bond purchases are showing in global markets. Emerging economies have seen an exodus of cash, with their 20 most-traded currencies falling more than 5 percent in the past three months, according to data compiled by Bloomberg.

“It’s all part of a general flight-to-safety trade -- investors are liquidating positions in riskier assets,” said Hardman. “Currencies such as the yen are the funding currencies over the last year or so, but that’s ultimately leading to short positions being pared. That’s encouraging a stronger yen in the near term.” A short position is a bet an asset will decrease in value.

Australia’s dollar slid versus most of its most-active counterparts as a measure of volatility increased, damping demand for higher-yielding currencies.

The JPMorgan G7 Volatility Index increased to 10.14 percent, the highest level since July 16. The gauge has averaged 8.93 percent in the past 12 months.

The Aussie dropped 0.5 percent to 89.85 U.S. cents and New Zealand’s dollar declined 0.7 percent to 77.97 U.S. cents.

The franc strengthened 0.4 percent to 1.2289 per euro, and rose 0.6 percent to 91.75 centimes per dollar.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $23 billion, compared with $15 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $5.1 billion, the largest share of trades at 22 percent. Options on the dollar-Brazilian real rate totaled $2.7 billion, or 12 percent.

Greenback-yen options trading was 26 percent less than the average for the past five Tuesdays at a similar time in the day and dollar-real trading was 79 percent more, according to Bloomberg analysis.

Dollar-lira options trading, at $1.3 billion, was 502 percent above average.

Syria Confrontation

The U.S., France and Britain stepped closer to a military strike against Syria, laying the legal groundwork to justify action, moving forces into place and rounding up allies in the region. Syria is suspected of an Aug. 21 chemical weapons attack outside of Damascus.

Any armed response would be narrowly focused on Syria’s weapons capabilities and wouldn’t be aimed at deposing Syrian President Bashar al-Assad, U.S. and U.K. officials said.

“There’s a lot of risk factors that the market is currently having to deal with,” said Sonja Marten, a currency strategist at DZ Bank AG in Frankfurt. “There’s a certain amount of demand for safe havens and that’s what’s giving the yen a bit of support.”

The yen has strengthened 4.9 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro rose 3.5 percent, while the dollar fell 1.1 percent.

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