Yen Gains Most in Four Weeks Amid Geopolitical Crises

The yen rallied the most in four weeks as concern geopolitical crises from the Middle East to Ukraine may escalate fueled demand for haven assets.

The ruble pared a weekly loss yesterday amid signals Russia is trying to de-escalate tension in Ukraine. The pound fell for a fifth week as U.K. exports dropped and the Bank of England maintained record-low interest rates. Canada’s dollar declined for a third week on slow jobs growth. Israel’s shekel dropped the most among the dollar’s 31 major peers as a Gaza truce ended in violence. Eurostat may report Aug. 14 that euro-zone economic growth slowed.

“Swiss franc and yen have definitely outperformed this week,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a phone interview. “Sterling is down big time at the moment. It’s at a two-month low and all the technicals are bearish, which really is not in line with expectations that would have been in place a month or two ago.”

The yen advanced 0.6 percent this week to 102.04 per dollar in New York, the biggest weekly gain since July 11, and reached 101.51, the strongest since July 24. It rallied 0.7 percent to 136.83 versus the euro after gaining to 135.73, the strongest level since Nov. 21.

The shared currency fell 0.1 percent to $1.3410 for a fourth weekly decline, the longest since a five-week skid ended March 8. The franc gained as much as 0.6 percent yesterday, the most since June 5, and added 0.1 percent on the week to 90.54 centimes per dollar.

Winners, Losers

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 developed-market peers, rose 0.1 percent to 1,021.37, its fourth-straight weekly gain and the longest stretch since March.

The yen and Norway’s krone gained the most among the dollar’s 31 major peers on the week, adding 0.6 percent, followed by the Chinese yuan’s 0.4 percent advance. The shekel tumbled 1.4 percent and Brazil’s real slid 1.1 percent.

Israel’s currency declined as the three-day truce in Gaza ended yesterday, with Israeli aircraft bombing the territory in response to rocket fire by Palestinian militants. Egypt called on both sides to reaffirm their commitment to a broader agreement.

The shekel’s weekly drop was the most since the five days ended May 17. It closed the week at 3.47 per dollar.

Loonie Dives

Canada’s dollar slid after Statistics Canada said employment increased by 200 jobs, versus a projected 20,000 gain by economists surveyed by Bloomberg News. The unemployment rate fell to 7 percent, from 7.1 percent, as people left the labor market.

The currency’s decline “is an appropriate response,” Greg Anderson, head of global foreign-exchange strategy at Bank of Montreal, said in a phone interview. “Seeing full-time job loss, and people giving up and leaving the labor force, is disappointing.”

The loonie, as the currency is known for the image off the waterfowl on the C$1 coin, dropped 0.5 percent to C$1.0973 for a third weekly drop.

Futures bets by large speculators for the loonie to rise against the U.S. dollar outnumbered bets for it to fall -- called net longs -- by 21,455 contracts as of Aug. 5. Bets fell 5 percent from last week, the first decline in 8 weeks, according to data released today by the Washington-based Commodity Futures Trading Commission.

Ukraine, Iraq

The ruble rose yesterday to trim a weekly loss after Russia’s Defense Ministry said warplanes had ended drills in the region near Ukraine. This came after the U.S. and Europe traded economic sanction with Russia.

Russia’s currency fell 1 percent on the week to 41.6835 versus the central bank’s target basket of dollars and euros, its second weekly decline.

The yen and franc rose yesterday after American warplanes struck against militants in Iraq, pulling the U.S. back into a conflict three years after its last combat troops left and adding to the allure of haven assets.

The rally in Japanese and Swiss currencies is probably more related to traders covering other bets than to “fleeing other currencies,” Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co. in New York, said in a phone interview.

‘Speculative Community’

“The geopolitics are really exaggerated,” Chandler said. “That explains as well why sterling is underperforming. While the speculative community was short euros, Swiss francs and Japanese yen, they were long sterling. So they’re liquidating.” A short position is a bet an asset will decline in value, while a long position is a wager on gains.

In the U.K., the June trade gap widened to 9.4 billion pounds ($15.8 billion) from 9.2 billion pounds, with the second-quarter deficit reaching 27.4 billion pounds, the most since the period through September 2013. Sterling fell to its lowest level in eight weeks after BOE officials maintained their key interest rate at 0.5 percent. The central bank will update economic forecasts next week.

The pound slid 0.3 percent on the week to $1.6773, touching an almost two-month low of $1.6767.

The euro dropped for a fourth week before gross domestic product in the 18-nation currency bloc increased 0.1 percent in the April through June period from the previous quarter, according to the median forecast in a Bloomberg survey. That’s less than the 0.2 percent first-quarter expansion reported by the European Union’s statistics office in Luxembourg.

Volatility Rises

JPMorgan Chase & Co.’s Global FX Volatility Index touched 6.33 percent this week, the most since June 4 and up from an all-time low on a closing basis of 5.29 percent on July 3. While rising volatility increases uncertainty and risk, it also creates opportunities for traders to profit on changes in exchange rates.

“The current ramping up of geopolitical risk is particularly inopportune because the implication is higher volatility, lower risk exposure and a shift to safe-haven bonds,” Steven Englander, the head of Group of 10 currency strategy at Citigroup Inc. in New York, said in an e-mail. “The euro zone is far more exposed to these geopolitical risks than is the U.S.”

The yen rose 1.2 percent in the past month, making it the best performer after the U.S. dollar, which gained 1.7 percent, according to Bloomberg Correlation-Weighted Currency Indexes that track 10 developed-market currencies. The euro rose less than 0.1 percent.

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