Monday, 2 December 2013

Yen Weakens to 6-Month Low on Risk-Linked Selling; Pound Rises

By John Detrixhe & David Goodman - Dec 2, 2013 7:08 AM PT

The yen fell to a six-month low versus the dollar after reports showed manufacturing inChinaEurope and the U.K. expanded last month, driving demand for risk and underscoring Japan’s currency’s role in the carry trade.
Japan’s currency weakened against most of its 16 major counterparts as Governor Haruhiko Kuroda said the Bank of Japan will keep monetary policy accommodative until inflation is stable at 2 percent. The pound rose to the strongest level since January against the euro after a gauge of U.K. manufacturing increased in November at a faster pace than analysts forecast. The Australian and New Zealand dollars rallied, whileCanada’s currency traded at the weakest level since October 2011.
Dec. 2 (Bloomberg) -- Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd., talks about the outlook for the yen and dollar. He spoke Nov. 29 in London. (Source: Bloomberg)
Dec. 2 (Bloomberg) -- Todd Elmer, head of Group-of-10 strategy for Asia ex-Japan at Citigroup Inc. in Singapore, talks about the yen, Bank of Japan monetary policy and the nation's economy. Elmer also discusses the outlook for the U.S. and Australian currencies and central bank policies. He speaks with Mia Saini on Bloomberg Television's "First Up." (Source: Bloomberg)
“The yen continues to be under pressure,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “It’s still the preferred risk-funding currency.”
The yen fell 0.5 percent to 102.93 per dollar at 10:04 a.m. New York time, after sliding to 103.05, the least since May 23. Japan’s currency fell 0.1 percent to 139.37 per euro after depreciating to 139.71 on Nov. 29, the weakest level since October 2008. The euro dropped 0.4 percent to $1.3534.

Carry Trade

Deutsche Bank AG’s Group-of-10 FX Carry index rose to 113.7 percent, the highest since Nov. 25. The measure fell 1.4 percent last month, snapping two periods of gains. In carry trades, investors sell the currency of a nation with low borrowing costs and buy assets where returns are higher.
Australia’s dollar rallied from almost its weakest level in three months and New Zealand’s currency rose for a second day. The Reserve Bank of Australia meets today, when analysts predict policy makers will keep interest rates unchanged at 2.5 percent.
The Aussie rose as much as 0.7 percent versus the greenback after falling as low as 90.56 on Nov. 29, the least since Sept. 4. New Zealand’s currency climbed 0.9 percent to 81.94 U.S. cents.
“We’re seeing some of the commodity currencies doing better,” Serebriakov said. “The kiwi and Aussie are the bounce-back stories today. Stronger data from China certainly helped both.”
The manufacturing Purchasing Managers Index for China, the world’s second-biggest economy, held at 51.4 last month, beating analyst estimates, according to government data yesterday. Figures released today by HSBC Holdings Plc and Markit Economics also indicated a reading above the 50 level that divides expansion from contraction.
A similar gauge for the euro region also confirmed manufacturing expanded in November at the fastest pace in more than two years.

Global Trend

“There is further evidence that the global manufacturing cycle appears to be strengthening,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Kuroda has also been speaking again, reiterating that the BOJ will continue to ease monetary policy until inflation stabilizes at 2 percent. All these developments reinforce the yen weakening trend.”
A U.K. factory index expanded to 58.4, the highest since February 2011, and more than the median forecast of 56.1 in a Bloomberg survey.
The pound climbed 0.3 percent to 82.76 pence per euro after appreciating to 82.53, the strongest since Jan. 11.
The pound has jumped 7.5 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes amid speculation a strengthening economy will prompt the Bank of England to increase borrowing costs. The euro appreciated 3.6 percent, while the dollar fell 1 percent.

Dollar Rise

The dollar climbed as the Institute for Supply Management’s factory index rose to 57.3 in November from 56.4 a month earlier, the Tempe, Arizona-based group’s report showed today. The median projection in a Bloomberg survey of 77 economists called for a drop to 55.1.
Economists predict a Dec. 6 Labor Department report will indicate the world’s biggest economy added 180,000 jobs in November after a 204,000 gain in the previous month.
Federal Reserve officials said they may reduce their $85 billion in monthly bond purchases “in coming months” as the economy improves, according to minutes of their October meeting released last month.
The Canadian dollar dropped as much as 0.4 percent to C$1.0654, the weakest since Oct. 4, 2011. The currency fell for the second day before a central bank meeting Dec. 4 where policy makers are projected to hold the benchmark interest rate at 1 percent.
To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.netDavid Goodman in London at
To contact the editor responsible for this story: Dave Liedtka at