Global risk aversion eases

The yen fell against all of its 16 major peers amid speculation central banks around the world will maintain accommodative monetary policy that boosts demand for higher-yielding assets.

The Japanese currency (CME:J6U14) dropped for the first time in three days against the dollar (NYBOT:DXU14) as the Bank of Japan started a two-day policy meeting, while Federal Reserve Chair Janet Yellen will testify to U.S. lawmakers this week. The euro (CME:E6U14) rose against most major counterparts amid speculation Portugal will contain turmoil among its banks. Indonesia’s rupiah fell the most in more than two weeks after the central bank said the current-account deficit probably widened to almost a record.

“Global risk aversion is easing,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “That’s allowing investors to take more risk-seeking behavior, and that’s leading to a partial reversal of the safe-haven-driven yen gains.”

The yen dropped 0.3% to 101.56 per dollar at 9:03 a.m. New York time, the biggest decline since July 9. Japan’s currency weakened 0.3% to 138.30 per euro. The 18-nation shared currency rose 0.1% to $1.3619.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, was little changed at 1,006.97.
 

Rupiah Drops
 

The Hungarian forint was the biggest gainer among the dollar’s 31 major peers, adding 0.3%. Chile’s peso rose 0.1%. The rupiah slid the most, followed by the Russian ruble (CME:R6N14), down 0.3%.

The rupiah fell for a second day after central bank Deputy Governor Perry Warjiyo said on July 11 that the current-account deficit was around 4% of gross domestic product in the three months through June. That compares with 2.06% in the previous period and a record 4.4% in the second quarter of 2013.

“Considering the current-account deficit, the rupiah should remain under pressure,” said Josua Pardede, an economist at PT Bank Permata in Jakarta.

Indonesia’s currency fell 0.7% to 11,665 per dollar, the biggest decline on a closing basis since June 25.

All economists surveyed by Bloomberg expect the Bank of Japan will maintain the pace of its monthly bond-buying at this week’s meeting. Thirty-two% of economists in a separate survey forecast the BOJ will expand stimulus on Oct. 31.

Yellen will deliver her semi-annual monetary policy testimony to the Senate Banking Committee tomorrow and to the House Committee on Financial Services the following day.
 

‘Dovish’ Position
 

“The market is positioned for a dovish message,” said Valentin Marinov, head of European Group of 10 currency strategy at Citigroup Inc. in London. “We could see sentiment cautiously recovering and the Japanese yen may lose some ground against higher-yielding, risk-correlated currencies.”

The U.S. central bank risks losing credibility by waiting too long to raise rates, Philadelphia Fed President Charles Plosser said last week in a Bloomberg Television interview. The Chicago Fed’s Charles Evans and Atlanta Fed’s Dennis Lockhart countered that slow inflation and labor-market slack would allow the central bank to wait until the second half of 2015 or 2016 before raising borrowing costs.

There’s a 39% chance that U.S. policy makers will raise their benchmark rate by June, according to fed funds futures data compiled by Bloomberg as of July 11. That’s down from a 49% probability on July 4.

The euro rose for the first time in three days against the dollar before European Central Bank President Mario Draghi testifies to the European Parliament’s economic and monetary affairs committee.
 

‘Remain Accommodative’
 

“President Draghi is likely to reiterate that policy will remain accommodative for the foreseeable future and that euro strength remains a downside risk to euro-zone inflation,” Commonwealth Bank of Australia strategists including Richard Grace, chief currency and rates strategist in Sydney, wrote today in an e-mailed note to clients.

Portugal’s Banco Espirito Santo SA appointed a new management team yesterday after markets were roiled last week when a parent company missed some debt payments.

The euro has weakened 1.7% this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar has declined 0.8%, while the yen gained 3.4%.

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