Sanctions spur demand for safer assets

The yen strengthened to a five-month high against the euro as the U.S. and European Union imposed extra sanctions on Russia over the Ukraine conflict, spurring demand for safer assets.

A gauge of the dollar dropped from a four-week high as a report showed U.S. housing starts fell 9.3 percent in June. Japan’s currency gained versus all except two of its 31 major peers as U.S. stock futures fell with European and Asian shares. Ten-year Treasury note yields dropped a second day. The ruble weakened the most in four months against the dollar. The euro slid for a third day versus the yen as a European report confirmed inflation stayed below the central bank’s goal. New Zealand’s dollar fell for a sixth day.

“There is a degree of uncertainty in terms of how the sanctions story will play out -- clearly that’s impacting equity sentiment and providing a risk off mentality,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “That, alongside the fact U.S. yields are drifting lower, has provided some reasonable resilient support for the yen.”

The yen gained 0.2 percent to 137.26 per euro at 8:59 a.m. in New York after reaching 137.18, the strongest level since Feb. 6. Japan’s currency strengthened 0.2 percent to 101.45 per dollar. The dollar was little changed at $1.3529 per euro.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major counterparts, fell 0.1 percent to 1,009.38 after climbing to 1,010.67 yesterday, the highest since June 20.

Housing starts

The Bloomberg Dollar Spot Index fell as U.S. housing starts declined to a 893,000 annual pace in June from 1.02 million in the previous month, according to today’s Commerce Department report.

Jobless claims declined by 3,000 to 302,000 in the week ended July 12, a Labor Department report showed today in Washington. The median forecast of 51 economists surveyed by Bloomberg projected 310,000.

Separate data today will show manufacturing in the Philadelphia region expanded for a fifth month in July.

Futures prices show a 71 percent chance the Fed will raise its benchmark rate by September 2015, up from a 69 percent probability at the start of this month. The central bank has kept the federal funds rate in a range of zero to 0.25 percent since December 2008.

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