The yen pared gains from a 14-year high against the dollar and reduced gains versus the euro on speculation Japan will intervene after Finance Minister Hirohisa Fujii said he will contact U.S. and European officials about exchange rates if needed. The Bank of Japan checked rates at commercial banks in Tokyo, seen as a type of verbal intervention, Kyodo News Service reported. The dollar reduced gains as European equity markets pared losses.
“It seems the market underestimated the implications of what came out of Dubai and we’ve seen a scramble to close down short-term positions,” said Paul Robson, a currency strategist at Royal Bank of Scotland Group Plc in London. “We’re seeing the dollar doing better but the risk sell-off is overdone.”
The euro fell to $1.4890 at 7:30 a.m. in New York, from $1.5019 yesterday and $1.4862 on Nov. 20. The yen rose 0.1 percent to 86.53 per dollar after climbing as high as 84.83, the strongest level since July 1995. The currency appreciated to 128.87 per euro, from 128.85, after reaching 126.91, the highest level since April 29.
The dollar rose against all but the yen among the 16 most- traded currencies tracked by Bloomberg, surging 1.7 percent versus the South Korean won and 1.6 percent versus the Australian dollar. It pared gains after the Dow Jones STOXX Index, a gauge of European stocks, pared losses after dropping 3.3 percent yesterday.
‘Systemic Risk Fears’
“A combination of systemic-risk fears and thin market liquidity due to the U.S. holiday season has proven to be a combustible mix,” Gareth Berry, a Singapore-based currency analyst at UBS AG, wrote today. “The wider fallout has simply revealed how fragile both markets and risk appetite still are.”
Dubai World, with $59 billion of liabilities, said this week it will seek a “standstill” agreement to delay repayment of its debt. The request sparked concerns that the eight-month, 42 percent surge in the MSCI World Index, a gauge of global stock markets, had outrun the underlying economic fundamentals.
The dollar lost 29.5 percent versus the Brazilian real and 29 percent versus the Australian dollar since March as traders funded bets on higher-yielding assets in those currencies by selling the greenback. Interest rates in Brazil are 8.75 percent and 3.5 percent in Australia versus down to zero in the U.S.
Interest Rate Expectations
The dollar headed for the worst month since December against the yen before a report next week that economists said will show U.S. business activity declined, supporting the case for the Federal Reserve to keep borrowing costs near zero.
The Institute for Supply Management-Chicago Inc.’s business barometer fell to 53 in November from 54.2 the prior month, according to a Bloomberg News survey before the Nov. 30 report. The Institute for Supply Management’s factory index dropped to 54.8 in November from 55.7 in October, according to a separate Bloomberg News survey before the data is released next week.
‘Some Respect’
“The market showed some respect to a stronger warning from the government today and bought back the dollar,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “The impact of verbal intervention will not last so long unless the government takes actual action.”
Japan hasn’t sold its currency since March 16, 2004, when it traded around 109 per dollar. The Bank of Japan sold 14.8 trillion yen ($172 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Japan last bought the currency in 1998, purchasing 3.05 trillion yen as the rate fell as low as 147.66.
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
Last Updated: November 27, 2009 07:33 EST
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