Yen Gains as Spreading Middle East Unrest Spurs Demand for Safest Assets

By Lucy Meakin - Feb 17, 2011 7:48 PM GMT+0800l

The yen rose against a majority of its most actively traded counterparts amid speculation unrest will keep spreading in the Middle East, boosting demand for the safest assets.

Japan’s currency reached the lowest in nearly three weeks versus the euro after a security crackdown left at least three people dead in Bahrain. Egypt’s Suez Canal said no Iranian warships have applied to pass through the waterway, a day after Israel said Iran was sending two vessels to Syria. The Swiss franc appreciated versus all but one major currency. The pound strengthened as Bank of England policy maker Andrew Sentance said interest rates should rise. The Norwegian and Swedish currencies declined as economic data missed forecasts.

“We see this conflict in the Middle East clearly spreading to other countries now, and we have this issue of the Iranian warships entering the Suez Canal,” said Ulrich Leuchtmann, head of foreign-exchange strategy in Frankfurt at Commerzbank AG. “This is a positive signal for those currencies that are perceived as safe havens, which is especially the yen and, to a smaller degree, the Swiss franc.”

Japan’s currency gained 0.1 percent to 83.58 yen per dollar at 11 a.m. in London. It rose to 113.44 yen per euro. The euro was little changed at $1.3572.

The Swiss franc appreciated 0.3 percent to 1.2985 per euro. It advanced 0.3 percent versus the dollar, to 95.68 centimes.

Demonstrations stretched into a third day in Bahrain, with protesters demanding democracy and the ouster of Prime Minister Sheikh Khalifa bin Salman al-Khalifa, a member of the royal family who has held the post for four decades. Police and protesters also clashed in Yemen andLibya.

Oil, Pound

The dissent follows the toppling of autocratic rulers by popular movements in Egypt and Tunisia and marks the spread of unrest into the Persian Gulf, where most of the Middle East’s oil is produced.

Oil traded near the highest in more than two years in London amid concern crude shipments will be disrupted.

The pound gained after Sentance today said BOE policy makers can’t be “relaxed” about the currency’s level.

“One of the benefits which we might see from a policy of raising interest rates is a modest appreciation of sterling, which would mitigate the impact of global inflationary pressures in the short term and help to steer inflation back to target over the medium term,” Sentance said in a speech in London.

Sterling appreciated 0.2 percent to $1.6127. Against the euro, the pound added 0.1 percent to 84.23 pence.

Nordic Currencies

Norway’s currency weakened against the dollar and euro after figures showed economic growth slowed last quarter, reducing the likelihood the central bank will speed up rate increases as it waits for demand to improve from abroad. The krone depreciated 0.3 percent to 7.7940 per euro and slid 0.4 percent to 5.7479 per dollar.

Mainland gross domestic product, which excludes oil, gas and shipping, grew 0.3 percent from the previous quarter after a 1.1 percent expansion in the three months through September, Statistics Norway said today on its website. That missed the 0.9 percent median forecast of 11 economists surveyed by Bloomberg.

Sweden’s krona also declined versus the greenback after an increase in consumer prices in January fell short of analyst estimates and unemployment increased more than forecast.

The krona depreciated 0.4 percent to 8.7433 per euro and slid 0.5 percent to 6.4514 per dollar.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.