Wednesday, 4 July 2012

Yen Falls On Prospects Central Banks Will Boost Stimulus

Bloomberg News | By Masaki Kondo and Mariko Ishikawa - Jul 5, 2012 7:40 AM GMT+0400
The euro remained lower following a decline yesterday before German factory data that may add to signs Europe’s debt crisis is damping growth.
The European Central Bank will probably reduce borrowing costs at a policy meeting today to stimulate the euro-area’s flagging economy, according to a Bloomberg News poll. The pound maintained a three-day slide on speculation the Bank of England will extend its so-called quantitative easing program today. The yen touched the lowest in more than a week versus the dollar before erasing losses as Asian shares declined.
Masaaki Shirakawa, governor of the Bank of Japan. Photographer: Haruyoshi Yamaguchi/Bloomberg
Euro Expected to Fall Versus Yen, ECB to Cut Rates
July 2 (Bloomberg) -- Derek Halpenny, European head of global currency-markets research at Bank of Tokyo-Mitsubishi UFJ Ltd., talks about European Central Bank interest rates and the outlook for the euro and dollar. He speaks with Linzie Janis on Bloomberg Television's "On the Move." (Source: Bloomberg)
“The euro is under pressure and will stay under pressure,” said Derek Mumford, a director in Sydney at Rochford Capital, a currency risk management company. “Germany is a huge market and if that market does slow down, it can only undermine global growth and confidence going forward.”
The euro was little changed 1.2526 as of 12:38 p.m. in Tokyoafter falling 0.6 percent yesterday. It lost 0.1 percent to 99.99 yen following a 0.5 percent decline. The yen touched 80.10 perdollar, the weakest since June 25, before trading at 79.83 from 79.88 yesterday. The pound was little changed at $1.5591 after retreating 0.8 percent in the past three days.
The MSCI Asia Pacific Index of shares declined 0.5 percent, snapping a six-day gain. U.S. financial markets were shut yesterday for the Independence Day holiday.
Factory orders in Germany, the euro zone’s biggest economy, probably declined 6 percent in May from a year earlier, according to the median estimate of economists in a Bloomberg survey before today’s figure. Orders fell 3.8 percent in April.

Spain’s Debt

Spain is scheduled to auction 3-, 4- and 10-year bonds today. The nation’s benchmark 10-yearyield jumped 16 basis points yesterday, the most since June 26, to 6.41 percent. That compared with a euro-era high of 7.29 percent reached June 18.
The country last month sought loans of as much as 100 billion euros ($125 billion) from the European Financial Stability Facility to recapitalize its banks battered by the collapse of the property boom in 2008.
“The Spanish auction will be taken up internally from the banks,” said Rochford’s Mumford. “It’s not a sustainable situation. It’s just taking up more debt financed by insolvent banks.”
The ECB is likely to cut its main refinancing rate by a quarter-percentage point from a record low of 1 percent, a separate Bloomberg poll of economists shows.
Options traders have cut bearish bets on the euro. The one- month risk-reversal rate showed a 0.94 percentage point premium yesterday in favor of euro puts relative to calls, the least since April 3. The decline in the premium signals a relative decrease in demand for options that profit if the euro falls against the dollar. Calls grant the right to buy the currency.

‘Convoluted’ Sentiment

“In theory, monetary easing should work for currency depreciation,” said Daisaku Ueno, a senior currency and debt strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “Sentiment is currently convoluted and tilted toward taking monetary easing as a euro positive in that it will support economies and spark a risk-on move.”
Reports from Markit Economics showed this week that U.K. manufacturing and construction shrank in June with growth of services activity slowing, adding to the case for the BOE to increase stimulus. The central bank will probably raise its target for bond purchases by 50 billion pounds ($78 billion) to 375 billion pounds, according to 30 of 41 economists in a Bloomberg survey.
Overseas traders sold the yen today in an attempt to activate stop-loss orders at about 80 to the dollar, said Yuji Saito, director of the foreign-exchange department in Tokyo at Credit Agricole SA. (ACA) A stop-loss order is an automatic instruction to buy or sell a currency at a certain level to limit losses in case a bet goes the wrong way.
The Bank of Japan (8301) will continue powerful monetary easing, Governor Masaaki Shirakawa said today to the central bank’s regional branch managers in Tokyo. Nervousness is seen in global financial markets and there’s uncertainty in the worldwide economy, he said.
To contact the reporters on this story: Masaki Kondo in Singapore at
Mariko Ishikawa in Tokyo at
To contact the editor responsible for this story: Rocky Swift at