Dollar Heads for Worst Week Since April Versus Yen

July 11, 2014

Washington (july 11)  The dollar headed for its biggest weekly drop versus the yen since April as Treasuries rose on bets the Federal Reserve will keep interest rates lower for longer and European financial stress boosted haven demand.

A gauge of the dollar was poised for its fourth loss in five weeks after minutes of the Fed’s June meeting failed to provide additional insight on the pace of rate increases. The yen climbed against most of its 16 major peers as concerns over Portugal’s banking sector prompted demand for safer assets. The Canadian dollar slumped after employment unexpectedly fell last month, while South Korea’s won slid for a sixth day amid speculation the central bank will cut interest rates.

“There’s a modest downward bias on the dollar -- the Fed hasn’t acknowledged the significant improvement in the labor market, they’re looking increasingly behind the curve in terms of their policy stance,” Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, said in a phone interview. “Investors have been more jittery over the financial health of Europe.”

The dollar was little changed at 101.33 yen at 9:33 a.m. in New York, having declined 0.7 percent this week, the most since the period ended April 11. The dollar traded at $1.3606 per euro. The yen was at 137.87 per euro after appreciating to 137.50 yesterday, the strongest since Feb. 6.

The benchmark U.S. Treasury 10-year note yield fell one basis point, or 0.01 percentage point, to 2.53 percent and has declined 12 basis points this week.

Canadian Employment

The Canadian dollar fell 0.5 percent to C$1.0702 per U.S. dollar after official data showed employment fell by 9,400 and the jobless rate rose to 7.1 percent from 7.0 percent. Twenty economists surveyed by Bloomberg News projected a 20,000 job increase and no change in the unemployment rate, according to the median forecasts.

“Canada added a lot of jobs early in the recovery and is struggling to get the next leg higher,” David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, said before the data. “The message for the Bank of Canada is clear: they have enough evidence to look through some of the increase in inflation and remain quite cautious because the growth outlook is not as strong as they would have hoped.”

The won slid versus all of its 16 major counterparts today after the Bank of Korea yesterday reduced its growth outlook for this year and said inflation was picking up more slowly than it had anticipated. There’s a possibility of a rate cut this quarter, Nomura Holdings Inc. and Goldman Sachs Group Inc. said in reports yesterday.

The won slid 0.5 percent to 1,018.92 per dollar, extending this week’s decline to 1 percent.

Rand Drops

South Africa’s rand fell as members of South Africa’s largest union turned down a pay offer and continued a strike involving more than 220,000 workers in manufacturing and engineering industries.

The currency dropped 0.2 percent to 10.7225 per dollar.

JPMorgan Chase & Co.’s Global FX Volatility Index slipped to 5.49 percent after climbing 11 basis points, or 0.11 percentage point, yesterday to 5.57 percent. The gauge declined to 5.29 percent on July 3, the lowest close since Bloomberg started collecting the data in 1992.

Yen Gains

The yen rose against most major peers as Banco Espirito Santo SA sought to reassure investors after a missed payment on short-term debt by a member of the Portuguese financial group roiled global markets. Portugal’s central bank said the lender is protected.

Japan’s currency rose 0.5 percent in the past week according to data by Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The greenback dropped 0.3 percent, while the euro have declined 0.2 percent. Sweden’s krona jumped 0.8 percent to lead gainers, while the Canadian loonie’s 0.8 percent slump paced decliners.

Minutes of the Federal Open Market Committee’s June 17-18 meeting released two days ago offered no new clues on the timing of an interest-rate increase, with officials saying policy depends most “on the evolution of the economic outlook.” Fed Chair Janet Yellen is scheduled to testify before Congress two days next week.

There’s about a 50 percent chance the Fed will raise its benchmark rate to at least 0.5 percent by July next year, down from 62 percent odds on July 4, according to data compiled by Bloomberg based on fed funds futures.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, rose 0.1 percent to 1,006.83, trimming its weekly decline to 0.1 percent.

“The bias in the market is that the dollar will be stronger because the U.S. is going to tighten rates, but they are probably getting a little premature in terms of timing and therefore prone to disappointment,” said Stuart Bennett, head of Group of 10 foreign-exchange strategy at Banco Santander SA in London. “They’re not as hawkish as the market wants them to be.”

SOURCE:  Bloomberg

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