By Gavin Finch and Ron Harui
July 13 (Bloomberg) -- The yen and the dollar strengthened against their higher-yielding peers as concern the global economic recovery will be delayed fanned demand for the Japanese and U.S. currencies as a refuge.
The yen and the dollar climbed most against the South Korean won and New Zealand dollar as the MSCI World Index of equities dropped for a second day. The pound weakened after the Sunday Times said Lloyds Banking Group Plc may report as much as 13 billion pounds ($21 billion) of new losses. South Korea’s won slid the most since March following a report saying North Korean leader Kim Jong Il is terminally ill.
“We’re forecasting yen strength on rising risk aversion throughout the summer after a string of surprisingly disappointing U.S. economic data,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “The markets are no longer that upbeat on the outlook for company earnings. In this environment the yen, and the dollar to a lesser extent, will benefit.”
The yen strengthened to 92.06 per dollar as of 7:15 a.m. in New York, from 92.54 last week. The Japanese currency appreciated to 128.64 per euro, from 129 on July 10. The euro advanced to $1.3974, from $1.3936. The won slid 2.7 percent to 1,316.50 per dollar, the biggest decline since March 30.
The MSCI World Index of shares fell 0.3 percent, after sliding 2.7 percent last week. The yen typically rises during times of financial turmoil because Japan’s trade surplus means the nation doesn’t have to rely on overseas lenders. The dollar benefits as the world’s main reserve currency.
Pound Falls
The pound declined against 12 of its most-traded peers after the Sunday Times said Lloyds will announce the losses in its first-half results scheduled to be reported in three weeks. No sources for the information were given by the newspaper. Lloyds spokeswoman Amy Mankelow declined to comment when contacted yesterday by Bloomberg News.
“The Times report rekindled concerns about the health of the financial system in Europe, which is believed to have a bigger exposure to non-performing loans than U.S. banks,” said Yousuke Hosokawa, a senior currency dealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “The risk-averse sentiment will favor the yen.”
Sterling tumbled 0.8 percent to $1.6088, sliding for the second consecutive day, and depreciated 1 percent to 86.83 pence per euro.
The ECB said last month commercial banks in the 16-nation euro region may lose a further $283 billion by the end of next year as the financial crisis forces them to write off bad loans.
Won Slides
The won fell to a two-month low after YTN television reported that Kim, who has yet to announce a successor, is suffering from pancreatic cancer and has less than five years to live. The cable news channel cited unidentified intelligence officials in China and South Korea. North Korea has in the past two months tested a nuclear bomb, fired missiles from its coast and threatened to attack the South. coast and threatened to attack the South.
“The currency and stocks responded sharply to Kim Jong Il’s rumored illness, which may increase uncertainty over the Korean peninsula,” said Christian Jin, a fund manager at HI Asset Management Co. in Seoul, which oversees the equivalent to $7.7 billion. “The issue may hang over markets in the short- term, as will a correction in global shares.”
Currency Diversification
The dollar fell for a second day against the yen after a finance official in Japan’s opposition party said the nation should consider diversifying its foreign reserves away from the greenback and buy International Monetary Fund bonds.
“In the medium to long term, we need to do what we can to avoid the risk of currency losses or economic turbulence that could result if the dollar were to swing,” Masaharu Nakagawa, shadow finance minister in the Democratic Party of Japan, said in an interview in Tokyo on July 9. “Many countries are starting to diversify their reserves.”
Japan’s Prime Minister Taro Aso called national elections for Aug. 30, setting up a contest that polls indicate will end his Liberal Democratic Party’s almost unbroken half-century of rule. Aso plans on dissolving the lower house of parliament the week of July 21, government spokesman Jun Matsumoto said today.
Traders are the most bullish on the yen against Australia’s dollar since March 20, with three-month calls costing 5.19 points more than puts, according to a risk-reversal rate comparison of prices for options to buy and sell, or calls and puts.
The yen’s one-month implied option volatility against the Australian dollar, a gauge of the risk of selling the currency to buy higher-yielding assets, rose 3.9 percentage points to 25.7 percent last week, the biggest weekly gain since Jan. 23. The dollar and the yen outperformed all of the 16 most-active currencies since the beginning of June after performing the worst in the preceding three months, Bloomberg data show.
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
Last Updated: July 13, 2009 07:35 EDT
Posts
0 comments:
Post a Comment