Wednesday, February 24, 2010

Yen Is Near 2-Week High Versus Euro on Signs Recovery Will Slow

Feb. 24 (Bloomberg) -- The yen traded near a two-week high against the euro as signs the global economic recovery will slow boosted demand for Japan’s currency as a refuge.

The yen may extend gains versus higher-yielding currencies as Asian stocks followed a decline in U.S. equities and before a report forecast to show American companies expanded at a slower pace. The dollar traded near a one-week low against the yen on prospects Federal Reserve Chairman Ben S. Bernanke will tell Congress that last week’s increase in the discount rate isn’t a prelude to higher benchmark borrowing costs.

“We may see some follow through in risk-averse activity in currencies,” said Ray Attrill, global research director at Forecast Ltd. in Sydney. “We are going to see some weakness in Asian equities today. We may see some follow-through strength in the yen.”

The yen traded at 121.78 per euro as of 9:29 a.m. in Tokyo from 121.86 in New York yesterday, when it touched 121.58, the strongest since Feb. 12. The dollar fetched 90.16 yen from 90.22 yen after reaching 89.92 yen yesterday, the lowest since Feb. 16.

The euro, which sank 0.7 percent yesterday, was little changed at $1.3506. It declined to $1.3444 on Feb. 19, the lowest since May 18.

The Nikkei 225 Stock Average fell 1.7 percent, and the MSCI Asia Pacific Index of regional shares dropped 1.1 percent. The MSCI World Index dropped 1 percent yesterday.

The Institute for Supply Management-Chicago Inc. is forecast to report on Feb. 26 that its business barometer fell to 59.7 this month from 61.5 in January, according to the median estimate of economists in a Bloomberg News survey. Readings greater than 50 signal expansion.

‘Growth Outlook’

The yen rose yesterday against all of the 16 most-traded currencies tracked by Bloomberg as a report showed U.S. consumer confidence fell to a 10-month low.

The Conference Board’s confidence index declined to 46, below the lowest forecast in a Bloomberg News survey of economists, from a revised 56.5 in January, a report from the New York-based private research group showed yesterday.

“Right now, investors have started worrying about the global growth outlook once again.” said John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney. “This has encouraged ‘safe haven’ demand for the dollar and the yen, while high-yielding and global growth-sensitive currencies like the Aussie have been sold heavily.”

Bernanke Testimony

The yen rose 1.9 percent, the biggest gain since Feb. 4, to 389.95 yesterday, according to the Bloomberg Correlation- Weighted Currency Index. The index calculates the value of the yen against a basket of currencies from the Group of 10 based on variances in exchange rates.

Bernanke is set to deliver his semiannual report on the economy today and tomorrow to Congress a week after the Fed decided to raise the discount rate charged to banks for direct loans.

The Fed said Feb. 18 it was increasing the rate to 0.75 percent from 0.5 percent to encourage financial institutions to rely less on the central bank for short-term borrowing. It also reiterated that economic conditions are likely to warrant “exceptionally low” benchmark rates “for an extended period.”

“The Fed’s action last week won’t lead to immediate rate increases,” said Tetsuya Inoue, chief researcher in Tokyo for financial markets and technology studies at Nomura Research Institute. “The employment situation limits the possibility for rate hikes,” a negative factor for the dollar.

Greek Banks

Fed Bank of St. Louis President James Bullard said in Richmond, Virginia that the central bank may hold off on raising interest rates through 2010.

The euro traded near a nine-month low against the dollar on speculation that credit ratings for Greek banks will be reduced further.

Greece’s four biggest banks, including National Bank of Greece SA and EFG Eurobank Ergasias SA, had their credit grades lowered yesterday at Fitch Ratings, which said the nation’s economic crisis will hurt asset quality. Fitch said it had a “negative outlook” on the banks that may result in more action.

“The rating downgrades suggest that Greece’s problems haven’t yet been resolved,” said Toshihiko Sakai, head of trading for currencies and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “The key question is whether the crisis will be contained within Greece. The bias is for the euro to weaken.”