Yen Gains on Haven Bid Amid Ukraine Tension; Euro Drops

The yen gained versus most of its major counterparts as rising tensions between Russia and Ukraine prompted demand for haven assets.

The Japanese currency pared its advance against the dollar after a report showed the U.S. economy grew faster than forecast in the second quarter. The yen strengthened as Ukraine’s president convened its security council, while Russia’s ruble weakened. The euro approached an 11-month low versus the dollar before euro-area inflation data released tomorrow while Sweden’s krona dropped the most in eight weeks versus the shared currency after retail sales fell.

“Markets have finally been shaken from their slumber and moved into risk-off mode,” said Eimear Daly, the head of market analysis at London-based broker Monex Europe Ltd. “If Ukraine wants to win the war against separatists they need to do it soon, which means we are entering several months of heightened geopolitical risk.”

The yen rose 0.2 percent to 103.72 per dollar as of 5 p.m. in New York. Japan’s currency added 0.3 percent to 136.73 per euro. The shared currency lost 0.1 percent to $1.3182.

JPMorgan Chase & Co.’s index of implied volatility on three-month options of Group of Seven currencies rose to 6.11 percent, the highest close since June 4.

Aussie Strength

The Australian dollar was the second-biggest gainer of its U.S. counterpart’s major peers, touching the strongest since Aug. 6. The Aussie has advanced 4.9 percent this year, exceeded only by Brazil’s real, which added 5.4 percent.

The Norwegian krone has gained the most this month, rising 1.7 percent, while the British pound has lost most ground, falling 1.8 percent. The euro is the second-biggest loser, sliding 1.6 percent since July 31.

Australian capital expenditure rose 1.1 percent last quarter for the first gain since the three months ended September, the nation’s statistics bureau said today. Economists surveyed by Bloomberg News predicted a 0.9 percent decline.

“The Aussie is doing well on the back of the upside surprise in the capital expenditure numbers,” said Alvin Tan, a currency strategist at Societe Generale SA in London. The currency rose 0.2 percent to 93.57 U.S. cents.

Geopolitical Risk

Russia’s ruble declined the most of the dollar’s 31 major peers, touching a six-month low. The currency tumbled 1.6 percent to 36.7500 per dollar, the biggest drop since July 17.

Japan’s yen advanced after Ukraine’s President Petro Poroshenko said in a website statement that the security council will draw up further plans after a sharp deterioration in the situation in the nation’s separatist-held eastern regions. The Swiss franc rose to the highest versus the euro since December 2012 as demand for haven currencies increased.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 leading global peers, was little changed at 1,027.36, after declining from a six-month high reached on Aug. 26.

The U.S. economy expanded faster than previously estimated in the second quarter, propelled by the biggest gain in business investment in more than two years, a government report showed.

Gross domestic product, the value of all goods and services produced, rose at a 4.2 percent annualized rate, up from an initial estimate of 4 percent and following a first-quarter contraction. The median forecast of 77 economists surveyed by Bloomberg called for a 3.9 percent gain.

Fed Policy

There’s a 74 percent chance the Fed will raise its target for overnight bank lending by September 2015, futures data compiled by Bloomberg showed. The central bank has kept its target for the federal funds rate at zero to 0.25 percent since December 2008.

“The U.S. seems to be moving in the right direction and unfortunately Europe, if anything, feels like it’s moving backwards right now,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “There are very different prospects for policy and I think that obviously is also going to have some reflection on the currencies.”

Inflation expectations in the euro area have declined, European Central Bank President Mario Draghi said in his Aug. 22 speech. Policy makers “will use all the available instruments needed to ensure price stability over the medium term,” he said at a conference in Jackson Hole, Wyoming. ECB policy makers meet next week.

Inflation Reading

Euro-zone inflation slowed to 0.3 percent in August from a year earlier, down from 0.4 percent last month, according to the median estimate of 38 analysts surveyed by Bloomberg News, before the report tomorrow.

Germany’s inflation rate was unchanged in August, data showed today. Price gains in the region’s largest economy, calculated using a harmonized European Union method, were up 0.8 percent from a year earlier, the Federal Statistics Office in Wiesbaden said. That’s in line with the median of 23 estimates in a Bloomberg News survey.

“We’ve got the data and now really we’re waiting on the reaction from the ECB,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “It’s hard to make a constructive case for euro outperformance at this point.”

Sweden’s krona weakened against all of its 16 major peers after data showed retail sales in July declined 0.7 from the previous month. Economists surveyed by Bloomberg forecast a 0.4 percent increase.

The krona declined 0.2 percent to 9.1903 per euro and 0.3 percent to 6.9717 per dollar.

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