Yen, Dollar Rise as Renewed Greece Concerns Spur Safety Demand

By Yasuhiko Seki and Ron Harui

April 16 (Bloomberg) -- The yen and the dollar strengthened as prospects Greece will struggle to rein in the euro region’s widest budget deficit spurred demand for safer assets.

The common currency was set for its second week of losses against the yen as the extra yield investors demand to hold Greek 10-year bonds over German bunds widened to the most since a bailout package was announced last week. The yen and Singapore’s dollar were poised for weekly gains versus the greenback on speculation China will scrap the yuan’s peg to deal with accelerating economic growth.

“Risk appetite is being tempered by a flaring up of concerns over European sovereign risk,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. “This may limit near-term gains in the euro, and underpin demand for ‘safe haven’ currencies like the dollar and the yen.”

The yen rose to 125.53 per euro as of 12:14 p.m. in Tokyo from 126.27 in New York yesterday, after earlier reaching 125.32, the strongest level since April 9. Japan’s currency climbed to 92.65 per dollar from 93.03, heading for a 0.6 percent gain this week. The dollar advanced to $1.3552 per euro from $1.3573.

Singapore’s dollar rose 0.8 percent this week to S$1.3783 per U.S. dollar, set for a third weekly gain, after the nation raised its economic growth and inflation forecasts and the central bank unexpectedly revalued its currency.

Greek Prime Minister George Papandreou yesterday asked for a meeting with the European Union, the International Monetary Fund and the European Central Bank. Talks will begin in Athens on April 19.

Greece Concerns

The yield on Greece’s benchmark 10-year bond surged to as high as 7.381 percent yesterday, higher than before the nation won a 45 billion euro ($61 billion) bailout package on April 11.

The premium investors demand to buy Greek debt over comparable German bonds has more than doubled since Dec. 1 on concern that Greece would struggle to trim the trading bloc’s widest deficit. The euro region is aiming to prevent the first default of a member nation and offered to put up two-thirds of the package to sustain Greece and protect a currency that’s weakened more than 5 percent this year.

“It appears just a matter of time before the backstop packages turn into bailout ones for Greece,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland. “Markets hang on every announcement around this and the euro is eventually likely to be hung because of it.”

Yuan Policy

Most Asian currencies rose against the dollar this week as traders bet the yuan may rise more than 3 percent in the next 12 months after China’s economy expanded at the fastest pace in almost three years.

Yuan forwards were at 6.6175 per dollar, compared with 6.6130 yesterday. China has pegged its currency at about 6.83 against the dollar since July 2008, after allowing it to rise 21 percent in the previous three years. Singapore’s central bank this week announced a one-time revaluation.

“China may revalue the yuan sooner rather than later as part of its ongoing exit from stimulus policies,” said Toshiya Yamauchi, senior foreign-exchange analyst in Tokyo at online currency trading company Ueda Harlow Ltd. “This will also fuel some upward pressure on the yen.”

The pound fell for the first time in four days as U.K. Prime Minister Gordon Brown and Conservative David Cameron failed to impress voters in Britain’s first televised campaign debate yesterday, reviving concern that next month’s election may produce a government too weak to reduce the budget deficit.

Liberal Democrat Nick Clegg emerged as the winner of the debate, three instant polls found. Two more debates will follow in the next two weeks.

‘Increased Volatility’

“The pound will continue to move with increased volatility, driven by changing prospects for the forthcoming election,” said Kazumasa Yamaoka, a senior analyst in Tokyo at GCI Capital Co., which advises on foreign currency, overseas investments and hedge funds.

A YouGov daily poll published last night before the campaign debate showed the Conservative lead on overall voting intention narrowing to six points from nine, with Cameron’s party at 37 percent and Labour at 31 percent. The Liberal Democrats had 22 percent.

The U.K. currency declined to $1.5430 from $1.5496 yesterday when it touched $1.5524, the highest level since Feb. 23. The pound is still set for a third weekly advance.

To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ben Levisohn in New York at blevisohn@bloomberg.net.

Last Updated: April 15, 2010 23:22 EDT