The yen rose for the first time in five days against the dollar (FOREX:USDJPY) as U.S. lawmakers struggled to reach an accord on raising the nation’s debt limit and restoring government operations, spurring demand for safer assets.
Japan’s currency advanced versus all except one of its 16 major peers after U.S. Senate leaders failed to find an agreement yesterday in Washington, with just three days until the nation’s borrowing authority lapses on Oct. 17. New Zealand’s dollar strengthened after an industry report showed home prices rose to a record and China’s yuan climbed to to a 20-year high. A measure of volatility among Group of Seven nations’ currencies fell to the lowest level since January.
“The closer we get to the deadline on Thursday, we’re going to see more pressure from the market,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “I still think a default is extremely unlikely, but we’ll probably go up right against the deadline, and it’ll create a few days of uncertainties.”
The yen rose 0.4% to 98.18 per dollar at 8:22 a.m. New York time after weakening 1.9% in the previous four days. Japan’s currency gained 0.3% to 133.18 per euro after depreciating to 133.60 on Oct. 11, the least since Sept. 26. The dollar fell 0.2% to $1.3566 per euro.
JPMorgan Chase & Co.’s G-7 Volatility Index, a measure of price swings among Group of Seven nations’ currencies, fell to 8.24%, the lowest level since Jan. 23. The gauge has dropped from this year’s high of 11.96% on June 24. The 2013 average is 9.48%.
The yuan strengthened to a 20-year high as the People’s Bank of China raised its daily fixing for the currency by 0.08% to 6.1406 per dollar, the strongest since a peg to the greenback was lifted in July 2005. Chinese inflation quickened to 3.1% last month from a year earlier, the fastest pace since February, data showed today.
“The global recovery remains patchy and China is looking to shift growth toward domestic consumption,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp. “If inflation continues to trend up, we are going to be in a stronger environment for the Chinese currency.”
The yuan gained 0.2% to close at 6.1079 per dollar in Shanghai, China Foreign Exchange Trade System prices show. It touched 6.1073, the strongest since the government unified the official and market exchange rates at the end of 1993.
The kiwi rose versus all of its 16 major counterparts after the Real Estate Institute of New Zealand said a home-price index climbed 0.8% in September from a month earlier to an all- time high.
New Zealand’s dollar gained 0.4% to 83.59 U.S. cents after rising to 83.78 cents, the highest level since Sept. 24.
Senate Majority Leader Harry Reid said yesterday he had a “productive conversation” with Minority Leader Mitch McConnell without reaching a conclusion on a plan to send to the Democratic-controlled chamber for a vote.
“Given the fiscal shenanigans, we could go through several months of dull data, especially if we get just a short-term fix,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. “The euro could maybe get up toward $1.40 on the basis that the market will be looking for an alternative to the dollar and a recovery is occurring modestly in Europe.”
The euro last traded at $1.40 in October 2011.
Policy makers from Japan, India, Russia and Saudi Arabia expressed faith in the ability of the U.S. to pay its bills as the potential for default dominated the annual meetings of the International Monetary Fund and World Bank, which ended yesterday in Washington. The wrangling led strategists to cut their forecasts for the dollar for a third straight month in October, the longest stretch this year.
“Everyone’s just assuming that the U.S. cannot default, which is a rather dangerous assumption to make, but nonetheless markets are making it,” said Geoffrey Yu, a senior foreign- exchange strategist at UBS AG in London. “People don’t want to have a position on, because they know it’s going to be resolved at some point.”
The dollar has declined 1.2% in the past month, according to Bloomberg Correlation Weighted Indexes that track 10 developed-country currencies. The euro gained 1% and the yen climbed 0.2%.