Yen declines as Stock gains damp bid for safety
By Bloomberg
The yen declined against most of its 31 major peers as European equities climbed for the first time in nine days, damping demand for the safest assets.
A gauge of expectations for currency volatility slipped from an eight-month high reached this week when traders re- evaluated prospects for global growth, U.S. monetary policy and the spread of Ebola. New Zealand's dollar erased most of a 1 percent loss after its central bank said it erroneously republished September comments saying the currency's level was unjustified. Indonesia's rupiah rose before the president's inauguration.
"Equity markets are positive in Europe so there's a bit of risk appetite creeping back into the market," said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. "That's weakening the yen, but compared to what we've seen earlier in the week it's more of a consolidation. I guess a lot of traders are quite exhausted with what they have been through in the last 48 hours."
The yen fell 0.1 percent to 106.42 per dollar at 8:13 a.m. New York time, and was on pace for a 1.1 percent gain this week. It slipped 0.2 percent to 136.45 per euro. The dollar fell 0.1 percent to $1.2820 per euro, set for a 1.5 percent loss since Oct. 10.
"I would look for higher dollar-yen by the end of the year," Nordea's Christensen said.
Stocks Rebound
The Stoxx Europe 600 Index jumped 1.7 percent, after a 7.7 percent slump in the past eight days dragged it to the lowest level of the year.
JPMorgan Chase & Co.'s Global FX Volatility Index fell 11 basis points to 7.98 percent, paring this week's increase to 38 basis points. It climbed as high as 8.56 percent yesterday, the most since Feb. 6. That's up from a record-low 5.28 percent reached in July.
"Volatility has jumped across all asset classes, including FX markets," said Greg Gibbs, the head of Asia-Pacific markets strategy at Royal Bank of Scotland Group Plc in Singapore. "You can put it down to the weaker economic outcomes we've seen lately -- German data has been soft, Chinese data has been soft, and there's Ebola."
President Barack Obama said yesterday he's open to naming a czar to coordinate the U.S. domestic response to Ebola amid concern that health workers may have spread the deadly virus.
FOMC Caution
Speculation the U.S. central bank will raise rates next year had led to a record rally in the U.S. currency. The advance started to reverse last week after minutes of the Sept. 16-17 meeting of the Federal Open Market Committee showed participants said expansion "might be slower than they expected if foreign economic growth came in weaker than anticipated."
Futures traders estimated a Federal Reserve interest-rate increase at 66 percent odds in December 2015, suggesting it's now the earliest date for a likely move. They saw a 52 percent chance for the Fed to tighten in July next year as recently as Oct. 3.
The dollar has still risen 5.7 percent in the past three months, the best performer in that period among 10 developed nation currencies tracked by Bloomberg Correlation Weighted Indexes. The New Zealand dollar has weakened most, falling 4.1 percent, while the yen is down 0.1 percent.
"The market's bullish U.S. dollar view has capitulated slightly," said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. "Currency markets are pricing in a little bit more in terms of economic growth, whereas the rates markets are pricing a cautious FOMC," he said referring to the Federal Open Market Committee.
The Fed next meets Oct. 28-29 and may end its bond purchase program this month.
Bank Error
The New Zealand dollar erased earlier losses after the central bank acknowledged it made an error in releasing a repeat of an earlier statement on the exchange rate, instead of a statement notifying that it was changing the way it calculates the trade-weighted index.
New Zealand's currency was little changed at 79.47 U.S. cents.
Indonesia's rupiah appreciated 1.2 percent to 12,108 per dollar, leading gains today versus the greenback among 31 major currency pairs. The inauguration of the nation's President-elect Joko Widodo is due on Oct. 20.
"There seems to be some position adjustment before the weekend and inauguration of the new government next week," said Tsutomu Soma, Tokyo-based department manager of the fixed-income business unit at Rakuten Securities Inc. "In the long-term, the main scenario is that the Fed will probably start raising rates sometime next year and the dollar will continue to see appreciation pressure."
China will set an economic growth target of about 7 percent for 2015, tolerating the weakest expansion in a generation as leaders tackle debt risks and imbalances, according to analysts polled by Bloomberg. Reports next week may show manufacturing growth stalled in the euro area in October, while it slowed in the services sector.