Yen Weakens Against Major Peers Before Yellen SpeaksRachel Evans
The yen fell against all of its 16 major peers amid speculation central banks around the world will maintain accommodative monetary policy that boosts demand for higher-yielding assets.
The euro gained against the dollar even after European Central Bank President Mario Draghi warned currency appreciation is “a risk to the sustainability of the recovery.” The Japanese currency dropped for the first time in three days against its U.S. peer as the Bank of Japan started a two-day policy meeting. Federal Reserve Chair Janet Yellen will testify to U.S. lawmakers this week. Indonesia’s rupiah fell the most in two weeks on a widening current-account deficit.
The rise in dollar-yen is “a combination of improving risk appetite globally and also slightly higher rates in the U.S.,” said Robert Sinche, a global strategist at Stamford, Connecticut-based brokerage Pierpont Securities LLC. “Of the policy decisions or announcements this week, the important one is Yellen and it might tilt slightly positively toward the dollar.”
The yen dropped 0.2 percent to 101.54 per dollar at 5 p.m. New York time after sliding 0.3 percent, the biggest decline since July 3. Japan’s currency weakened 0.3 percent to 138.28 per euro. The 18-nation shared currency gained 0.1 percent to $1.3619.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, was little changed at 1,006.77.
Yields on 10-year Treasuries were 2.55 percent, compared with 1.21 percent for similar-maturity debt of Germany and 0.53 percent for that of Japan.
The Hungarian forint was the biggest gainer among the dollar’s 31 major peers, adding 0.4 percent, followed by the Brazilian real, which rose 0.3 percent. The rupiah slid the most, 0.7 percent, trailed by the Russian ruble, which slipped 0.4 percent.
The rupiah fell for a second day after central bank Deputy Governor Perry Warjiyo said on July 11 that the current-account deficit was around 4 percent of gross domestic product in the three months through June. That compares with 2.06 percent in the previous period and a record 4.4 percent in the second quarter of 2013.
Russia’s ruble weakened for a third day against the dollar as fighting in south-east Ukraine rekindled concern further economic sanctions will be imposed on Russia.
The euro rose against most major peers after Draghi told the European Parliament’s economic and monetary affairs committee in Strasbourg, France, that he sees interest rates remaining at a record low for an extended period.
Draghi’s targeted lending program will hand banks more than 700 billion euros ($950 billion) of cheap funding, according to the Bloomberg Monthly Survey of 45 economists. The ECB has identified lending to companies and households as a key weakness in the euro area’s fragile recovery.
The shared currency earlier rose as high as $1.3640. Portugal’s Banco Espirito Santo SA appointed a new management team yesterday after markets were roiled last week when a parent company missed some debt payments.
“ECB policy expectations are pretty firm at this point,” said Mark McCormick, a macro strategist at Credit Agricole SA in New York. “Markets will focus in on U.S. data, particularly retail sales this week, but any strength that we have in the underlying data is going to be offset by a very dovish Yellen.”
Yellen will deliver her semi-annual monetary policy testimony to the Senate Banking Committee tomorrow and to the House Committee on Financial Services the following day.
Unemployment and inflation are moving toward the Fed’s targets. The U.S. jobless rate slipped to 6.1 percent in June, the lowest since 2008. The central bank’s preferred measure of inflation rose 1.8 percent in May from a year earlier, compared with 1.6 percent in April and 1.1 percent in March, according to the Labor Department.
Retail-sales data and the New York Fed’s Empire State manufacturing index are set for release tomorrow.
“We’re starting to see some pockets of dollar strength,” said Kathleen Brooks, European research director at Forex.com in London. “Where she could come unstuck a little bit is with the questions from members of Congress, especially regarding inflation. We’re only about five months from mid-terms and rising prices tend not to be good for politicians.”
There’s a 39 percent chance that U.S. policy makers will raise their benchmark rate by June, according to fed funds futures data compiled by Bloomberg as of July 11. That’s down from a 49 percent probability on July 4.
The yen weakened as all economists surveyed by Bloomberg expect the Bank of Japan will maintain the pace of its monthly bond-buying at this week’s meeting. Thirty-two percent of economists in a separate survey forecast the BOJ will expand stimulus on Oct. 31.
“Global risk aversion is easing,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “That’s allowing investors to take more risk-seeking behavior, and that’s leading to a partial reversal of the safe-haven-driven yen gains.”
The dollar gained for a third day against the pound as traders pared bets on sterling after the U.K. currency reached its strongest level in more than five years this month. The pound slumped 0.2 percent to $1.7084.
The pound is the best performer against a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes during the past year, adding 10.8 percent. The euro gained 1.2 percent. The yen fell 5.2 percent and the dollar declined 3.4 percent.