By Lukanyo Mnyanda and Ron Harui
The yen strengthened as stocks around the world tumbled, with the MSCI World Index sliding as much as 0.9 percent. The dollar dropped versus the yen after Russian President Dmitry Medvedev said the world is too reliant on the U.S. currency and French Finance Minister Christine Lagarde called for increased global coordination of foreign exchange. The euro dropped as Germany’s IKB Deutsche Industriebank AG said it lost 580 million euros ($807 million) in the fiscal year ending March 31.
“We’re in an environment where risk appetite is fading and the yen in capitalizing,” said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “We haven’t had any decisive news to change the pessimistic mood.”
The yen strengthened to 132.40 per euro as of 6:43 a.m. in New York, from 134.26 last week, after earlier reaching the strongest level since June 23. Japan’s currency appreciated to 95.22 versus the dollar from 96.04. It gained 1.8 percent to 75.15 per Australia’s dollar and advanced 1.4 percent to 59.64 per New Zealand’s dollar.
Japan’s currency will probably trade between 95 yen and 100 yen against the dollar in the next three months, before weakening to 105 by year-end, as the global economy shows more signs of rebounding, Maher said.
The dollar was at $1.3901 per euro from $1.3980, and 1.6112 versus the pound from $1.6333, after reaching $1.6096, the strongest since June 9.
Medvedev’s Call
The dollar dropped against the yen after Russia and India said the global economy is too dependent on the U.S. currency and called for revisions to how $6.5 trillion in foreign- exchange reserves are managed. The comment came as Group of Eight leaders prepared to meet in Italy this week.
“The dollar system, or the system based on the dollar and euro, have shown that they are flawed,” Medvedev said in an interview with Italy’s Corriere della Sera, repeating his proposal for a new international reserve currency.
Authorities “must explore better coordination of exchange- rate policy,” Lagarde told reporters yesterday at a conference in Aix en Provence, France. India should diversify its foreign holdings away from the dollar, Suresh Tendulkar, an economic adviser to Prime Minister Manmohan Singh, said July 3.
Declining Stocks
Stocks around the world extended losses, with Europe’s Dow Jones Stoxx 600 Index sinking 1.6 percent. The MSCI Asia-Pacific Index of regional shares slipped 0.9 percent and the Nikkei 225 Stock Average dropped 1.4 percent. Stocks fell last week as U.S. unemployment rate rose to a 26-year high.
“The aftereffects on risk appetite of the weak June U.S. employment report continue to be felt,” Steven Pearson, a foreign-exchange strategist at Bank of America Corp. in London, wrote in a report today. “Additionally a larger-than-expected loss from a German banking group has served as a reminder that the financial outlook in Europe remains challenging.”
The euro declined to the weakest level since June 25 against the dollar after IKB, Germany’s first victim of the subprime-mortgage crisis, said July 4 it will use retained earnings to lower the net loss to 78 million euros, wider than the prior-year loss of 11 million euros.
Earnings at U.S. companies such as Ford Motor Co. may keep declining in the next three months as the highest unemployment in a quarter-century deters consumers from spending, according to data compiled by Standard & Poor’s and Bloomberg.
Fundamental Support
The year-over-year profit slide for Standard & Poor’s 500 Index members may narrow to 21 percent from July through September, after declines of an estimated 34 percent in the second quarter and about 60 percent in the year’s first three months, according to data compiled by S&P and Bloomberg.
The yen gained even after North Korea test fired seven short-range missiles on July 4, two days after launching four rockets, spurring condemnations from the U.S., South Korea and Japan.
“As long as North Korea is launching short-range missiles that can’t reach the territory of Japan, this geopolitical news which often weighs on the yen, will not affect the price action,” said Akira Takeuchi, a Tokyo-based currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh- largest banking group.
No ‘Fundamental’ Support
The single European currency is unlikely to get support from fundamental data this week, with technical signals suggesting declines, according to Helaba Landesbank Hessen- Thueringen.
If the currency drops below a range of $1.3950 to $1.3925, the next so-called support levels will be at $1.3890, $1.3829 and $1.3806, Ralf Umlauf, head of floor research at Helaba in Frankfurt, wrote in a research report today.
Currency investors and other momentum chasers that use computer models to spot trends are getting hurt by a lack of clear direction as the markets get pulled in opposing directions. FX Concepts Inc., the world’s largest currency hedge fund, said it lost 5.4 percent in this year’s first five months. John W. Henry & Co.’s foreign-exchange fund told investors it lost 2 percent, after 2008’s 76 percent gain.
Deflationary pressure from the first global recession since World War II is being countered by the inflationary forces of record stimulus spending and currency printing across the globe.
“Unfortunately, there’s lack of consistence of what’s happening,” John Taylor, chairman of New York-based FX Concepts, which manages about $12 billion. “I am wondering how stupid the market can be for how long.”
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
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