Dollar Falls for Third Day Versus Yen on Unexpected Retail Drop

By Oliver Biggadike

April 14 (Bloomberg) -- The dollar fell for a third day against the yen, the longest stretch of decline in two months, as government reports showed U.S. retail sales and producer prices unexpectedly decreased in March.

Singapore’s dollar rose against all of its major counterparts as the city-state’s central bank said it saw no reason for “any undue weakening” of the currency. The yen gained against counterparts including the New Zealand dollar and Norwegian krone as a drop in stocks spurred demand for safety.

“It’s a hit on sentiment,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. “Right now we’re getting a little bit of risk aversion.”

The dollar dropped 0.7 percent to 99.39 yen at 10:46 a.m. in New York, from 100.10 yesterday. The U.S. currency gained 0.9 percent to $1.3250 against the euro from $1.3368. The euro fell 1.6 percent to 131.69 yen from 133.81.

Thailand’s baht erased yesterday’s drop against the dollar, gaining 0.9 percent to 35.38 as protesters agreed to end a siege at Government House in Bangkok. The baht fell 0.8 percent yesterday after two people died in clashes with troops.

Singapore’s dollar advanced as much as 1.2 percent to S$1.4965 versus the greenback, the strongest level in two months, after the Monetary Authority of Singapore “re- centered” the trading band in which the local currency is managed and said it doesn’t plan to seek either appreciation or depreciation.

‘Strong Half’

“Some in the market had been expecting the MAS to go to a depreciation policy,” said Thomas Harr, a senior currency strategist at Standard Chartered Bank in Singapore. The Singapore dollar “has found a floor now, and we are actually trading in the strong half of the band,” he said.

Singapore’s trade ministry said today the economy may shrink as much as 9 percent this year, the most since independence in 1965, as the global recession pushes down exports and manufacturing.

The yen gained 2.2 percent to 58.02 versus the New Zealand dollar and 2 percent to 14.94 against Norway’s krone as the drop in stocks reduced speculation that investors will borrow in Japan’s currency to buy higher-yielding assets elsewhere. The Bank of Japan’s target lending rate of 0.1 percent compares with 3 percent in New Zealand and 2 percent in Norway.

U.S. Stocks Fall

The Standard & Poor’s 500 Index fell 1.2 percent as Goldman Sachs Group Inc. lost 5.4 percent after raising $5 billion in a share sale to help repay $10 billion in government rescue funds.

The dollar fell against the yen as the Commerce Department reported that U.S. retail sales decreased 1.1 percent last month after a revised 0.3 percent advance in February. The median forecast of 73 economists surveyed by Bloomberg was for a 0.3 percent increase. Prices paid to U.S. producers unexpectedly declined 1.2 percent, the Labor Department reported.

Gains in the yen may be curbed on speculation the carry trade is making a comeback after its longest losing streak in three decades. In such a transaction, investors get funds in a country with relatively low borrowing costs and invest in another with higher interest rates.

Stimulus plans and near-zero interest rates in developed economies are boosting investor confidence in emerging markets and commodity-rich nations with interest rates as much as 12.9 percentage points higher.

Using dollars, euros and yen to buy the currencies of Brazil, Hungary, Indonesia, South Africa, New Zealand and Australia earned 8 percent from March 20 to April 10, that trade’s biggest three-week gain since at least 1999, data compiled by Bloomberg show.

Carry Trade Outlook

Goldman Sachs, Insight Investment Management and Fischer Francis Trees & Watts have begun recommending carry trades, which lost favor last year as the worst financial crisis since the Great Depression drove investors to the relative safety of Treasuries.

The euro declined against the yen before Germany’s Federal Statistics Office releases its report on wholesale prices tomorrow. Prices fell 7.1 percent in March from a year earlier after a 5.7 percent decrease in the previous month, according to the median forecast in a separate Bloomberg survey.

“If inflation threatens to remain significantly below 2 percent for a considerable period of time, then additional policy easing could be warranted to counter that eventuality,” European Central Bank council member Athanasios Orphanides said in an April 11 interview in Nicosia.

The ECB cut its benchmark interest rate on April 2 less than economists forecast, reducing it by a quarter-percentage point to 1.25 percent.

To contact the reporter on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net