The yen (FOREX:USDJPY) dropped against 15 of its 16 major peers as risk appetite increased amid rising speculation that U.S. lawmakers will reach an agreement to avert a default, curbing demand for Japan’s currency as a refuge.
The euro rose for a fourth day against its Japanese counterpart (FOREX:EURJPY) as U.S. Republicans and President Barack Obama pledged further discussions on a debt-limit increase and government shutdown. Australia’s dollar headed for back-to-back weekly gains after the yield premium its two-year debt offers over the U.S. climbed to its highest since April. The krona gained versus the dollar as a gauge showed Sweden’s unemployment fell last month.
“The last 24 hours have given markets more confidence that the two sides can come up with an acceptable package,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a phone interview. “Those developments are driving some of the yen weakness we’ve seen.”
The yen depreciated 0.1% to 98.26 per dollar at 8:30 a.m. New York time, having slid 1.5% in the prior three sessions. It reached 98.55 versus the greenback, the weakest level since Oct. 1. Japan’s currency dropped 0.5% to 133.31 per euro, poised for a 0.9% weekly decline. The dollar fell 0.4% to $1.3567 per euro.
Stocks rose, with the Stoxx Europe 600 Index gaining 0.4%, and the MSCI Asia Pacific Index of shares climbing 1.3%. Japan’s markets will be closed Oct. 14 for a holiday.
Obama and House Republican leaders met for 90 minutes at the White House yesterday after House Speaker John Boehner of Ohio said he would offer a measure to postpone a potential U.S. default to Nov. 22 from Oct. 17.
The president didn’t accept or reject the Republicans’ plan for a short-term increase in the debt limit. The two sides planned further talks among their staff members last night to address the president’s insistence that Republicans agree to fund the government before starting broader fiscal talks.
The dollar has advanced 0.2% this week, according to Bloomberg Correlation Weighted Indexes that track 10 developed- nation currencies. The yen weakened 0.6%, while the Australian currency rose 0.7% and the euro strengthened 0.3%.
“The yen is underperforming against a basket of currencies and that is in part a function of potential progress in Washington,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Currencies are reflecting a more confident global backdrop.”
Dollar gains may stall before a report today that economists predicted will show confidence among U.S. consumers declined to the lowest level since January this month. The Thomson Reuters/University of Michigan preliminary index of sentiment decreased to 75.3 from 77.5 in September, according to the median estimate in a Bloomberg News survey.
A report on U.S. retail sales scheduled to be released today is among those that have been delayed by the partial U.S. government closure that began Oct. 1 after Republicans insisted on changes to a 2010 health-care law.
A shutdown lasting through the end of the week could cost the economy 0.2 percentage point in growth, according to the median estimate in a Bloomberg survey of economists. The damage escalates to a 0.5-point loss if the shutdown carries through Oct. 25. The closure has also pushed out expectations for when Federal Reserve will start to taper monetary stimulus.
Goldman Sachs Group Inc. raised its forecast for the yen versus the dollar saying momentum behind Prime Minister Shinzo Abe’s reforms has slowed and expectations of further easing by the Bank of Japan haven’t been realized.
The yen will trade at 98 per dollar over three months, the bank said, from an earlier projection for it to fall to 105, according to a note to clients dated Oct. 10. Japan’s currency will trade at 103 over six months and 107 over a year, compared with previous forecasts of 105 and 110 respectively, it said.
“We expect additional monetary policy easing and some further structural reforms around the beginning of the next fiscal year,” analysts led by London-based chief currency strategist Thomas Stolper wrote. “This suggests that dollar-yen could start to drift higher in the first quarter next year. This would also correspond to the expected start of Fed tapering.”
Speculation that the lack of U.S. data and slower growth may delay a reduction of bond purchases by the Fed has helped widen the yield gap between the U.S. and Australian government securities. Australia’s two-year debt offered holders 2.5 percentage points more in yield than similar-maturity Treasuries, the most since April 22.
Australia’s dollar added 0.2% to 94.74 U.S. cents and has gained 0.4% this week. It climbed 0.4% to 93.10 yen, up 1.2% from Oct. 4. New Zealand’s currency climbed 0.7% to 83.37 U.S. cents and 0.8% to 81.93 yen.
Sweden’s non-seasonally adjusted unemployment rate, as measured by the number of people claiming benefits, fell to 4.6% last month, from 4.8 in August, the Stockholm-based Public Employment Service said today. The median estimate of eight economists surveyed by Bloomberg was 4.7%.
The krona advanced for the first time in four days against the dollar, appreciating by 0.6% to 6.4682. It strengthened 0.2% to 8.7775 per euro.