Yen strengthens from five-year low on Fed views

The yen rose from a five-year low versus the dollar (FOREX:USDJPY) amid speculation on the timing of a cut in the Federal Reserve’s $85 billion of monthly bond purchases.

The Japanese currency fell earlier as the yield difference between Treasuries and Japanese bonds traded at almost the widest since April 2011. The euro weakened as European Central Bank policy maker Peter Praet said the region’s recovery is “fragile.” The Federal Reserve and Bank of Japan are scheduled to hold policy meetings next week.

“The yen’s fall to fresh lows prompted some profit- taking,” Joe Manimbo, a market analyst in Washington at Western Union Business solutions, a unit of Western Union Co., said in a phone interview. “The yen’s rebound partially stems from caution in the runup to the Fed next week.”

The yen gained 0.2% to 103.15 per dollar at 3:51 p.m. New York time, down 0.2% this week, after reaching 103.92, the weakest level since October 2008. Japan’s currency added 0.4% to 141.67 per euro. It reached 142.83, also the weakest since October 2008. The shared European currency fell 0.2% to $1.3733.

The JPMorgan G-7 FX Volatility Index dropped to 8.64% after rising to 8.78%, the highest level since Oct. 2. It has increased from a 2013 low of 7.48% reached on Oct. 28, and is still below the year’s average of 9.23%.

Futures Positions

Hedge funds and other large speculators trimmed bets the yen will weaken, according to data from the Commodity Futures Trading Commission. The difference in the number of wagers on a decline in the currency compared with those on a gain -- so- called net shorts -- was 129,711 as of Dec. 10, compared with 133,383 a week earlier.

The British pound weakened for a third day against the dollar on speculation its advance to a two-year high this week was overdone and as Bank of England Chief Economist Spencer Dale said interest rates will stay low. Sterling is the worst performer out of its 16 major peers and slipped 0.3% to $1.6298, after falling to its weakest level since Nov. 27.

South Africa’s rand strengthened versus all of its major counterparts as Chile’s largest drug maker raised its takeover offer for Adcock Ingram Holdings Ltd., the largest producer of South African hospital products. The currency climbed 0.9% to 10.2908 per dollar.

The Chilean peso rose versus all but one of its 31 most- traded peers as the country’s central bank kept borrowing costs unchanged yesterday after inflation accelerated more than expected in November, climbing back to the target range for the third time in the past 12 months. The currency increased 0.4% to 529.89 per dollar after gaining 0.8%, the most in a week.

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