Yen, Dollar Gain on Signs Global Banking Recovery to Be Delayed
The yen and the dollar strengthened against the euro as stocks snapped the longest rally in two years on concern the recovery of the global banking industry may be delayed, boosting demand for the currencies as a refuge.
“The currency markets are being driven by risk sentiment and what’s going on in with stocks,” said Jeremy Stretch, a senior strategist at Rabobank International in London. “There’s a case to argue that the recovery isn’t as well underpinned as some had hoped. There are a number of economic aftershocks out there to come.”
The yen strengthened to 132.70 per euro as of 8:52 a.m. in London, from 133.36 in New York yesterday, when it gained 0.5 percent. Japan’s currency climbed to 93.57 versus the dollar, from 93.74. The dollar rose to $1.4183 per euro, from $1.4226.
The pound dropped to $1.6333, from $1.6459 yesterday, and weakened to 152.85 yen, from 154.32 yen. The rand declined to 11.961 yen, from 12.011 yen.
CIT Concern
The dollar strengthened against 13 of the 16 most-traded currencies after CIT said yesterday it expected to post a loss of more than $1.5 billion for the second quarter, renewing concern the lender may have to file for bankruptcy.
Credit-default swaps protecting against a CIT default for five years climbed 6.5 percentage points to 47 percent, according to broker Phoenix Partners Group. The cost implies that traders have priced in an almost 95 percent chance that the lender will default within the next five years.
“Worries over a possible insolvency of CIT appear to be returning,” said Akifumi Uchida, a Tokyo-based deputy general manager of the marketing unit at Sumitomo Trust & Banking Co., Japan’s fifth-largest bank. “This is a minus for sentiment and may cause buying of the yen versus the dollar and the dollar against European currencies.”
The yen gained versus all the most-active currencies after Britain’s Daily Telegraph reported that Barclays Plc will need another 12.8 billion pounds ($20.9 billion) and Royal Bank of Scotland Group Plc will require an additional 8.5 billion pounds to expand under new regulatory rules. The U.K. newspaper cited an analyst at JPMorgan Securities Ltd.
‘Not Fully Over’
“The Telegraph story came as a reminder that the financial crisis is not fully over,” said Shuzo Kakuta, senior foreign exchange advisor at Tokyo Tomin Bank Ltd. “This kind of topic is positive for the yen both against the dollar and cross- currencies” such as the Australian dollar.
The Australian and New Zealand dollars dropped for the first time in three days against the greenback after Federal Reserve Chairman Ben S. Bernanke said financial markets remained “stressed,” encouraging demand for safer assets.
Household spending is an “important” risk to the outlook because of continued job losses and declines in home values, Bernanke said yesterday on the first day of a two-day congressional testimony in Washington.
“A bit of risk aversion is creeping back into the market,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. Bernanke “was more dovish on the economy and on the economic recovery and a little bit of risk has been taken off the table which is weakening the Aussie.”
Australia’s dollar fell 0.6 percent to 76.24 yen and slipped 0.5 percent to 81.43 U.S. cents. New Zealand’s dollar weakened 0.6 percent to 61.33 yen and declined 0.4 percent to 65.52 cents.
Pound Tumbles
The pound dropped against all of the 16 major currencies after the National Institute of Economic and Social Research said today that home values will resume their decline because recent gains were driven by a lack of available homes.
The institute also predicted gross domestic product will keep falling until the final quarter of this year. It forecast GDP will shrink 0.4 percent in the second quarter. The median estimate of economists in a Bloomberg News survey is for a 0.3 percent drop. The Office for National Statistics will release the data on July 24.
“All of this is not good news for Britain,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “This is leading to selling of the pound.”
Gains in the Japanese and U.S. currencies were tempered on speculation an advance in Asian stocks will spur investors to increase holdings of higher-yielding assets. The MSCI World Index of shares fell 0.3 percent.
“Rising equities are likely to lead to selling of the yen,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The stock markets are considered to be a barometer of risk appetite.” link.....
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