 Yen Declines as Higher U.S. Treasury Yields Fuel More Demand for Dollar
Bloomberg - 9/10/2010 9:15:00 PM
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The yen dropped against the dollar as Treasuries yields rose, widening the difference between Japanese and U.S. interest rates and boosting investor appetite for the greenback to fund purchases of U.S. debt.
The yen slipped against all but the franc among its 16 most-traded counterparts and the Swiss franc declined as a report showed China’s imports increased more than economists predicted. The yuan headed for its biggest weekly gain since June as the U.S. stepped up pressure on China to allow its currency to strengthen. The dollar and other refuge currencies may weaken next week based on expectations for stronger economic data in the U.S. and Germany, bolstering confidence in economic growth.
“People are watching the difference between the U.S. and Japan and they’re more optimistic to buy the dollar due to this yield differential,” said Hidetoshi Yanagihara, a senior currency trader at Mizuho Financial Group Inc. in New York. “People are getting more optimistic about the upcoming economy in the U.S.”
The yen weakened 0.5 percent against the dollar to 84.22 at 10:21 a.m. in New York, from 83.78 yesterday It fell 0.6 percent to 107.02 per euro, from 106.37 yesterday. The euro traded at $1.2708 compared with $1.2696, after falling to $1.2644, the weakest since Aug. 31.
The Swiss franc weakened 0.94 percent to 1.2996 per euro from 1.2887 and fell 0.7 percent to 1.0226 per dollar.
Yield Premium
The premium investors demand to own U.S. 10-year Treasuries instead of similar-maturity Japanese debt rose to 163 basis points today, jumping 17 basis points from a low of 146 reached Sept. 7, the narrowest since April 2009. A basis point equals 0.01 percentage point.
Chinese exports rose 34.4 percent and inbound shipments climbed 35.2 percent, leaving a $20.03 billion surplus, a customs bureau report showed today. It’s the third straight month the trade surplus has stayed higher than $20 billion. A Bloomberg News economist survey predicted import gains of 27.5 percent and 35 percent for exports.
The yuan gained 0.2 percent to 6.7692 per dollar, bringing its weekly advance to 0.5 percent, according to the China Foreign Exchange Trade System. That was the biggest gain since the week ended on June 25 when it also appreciated 0.5 percent.
Geithner Asks
U.S. Treasury Secretary Timothy F. Geithner said Sept. 8 on Bloomberg Television that China should let the yuan rise more quickly. The U.S. House Ways and Means Committee will discuss China’s currency policy next week.
“Those advocating a tougher line against China in the U.S. Congress may emphasize that August was the third consecutive monthly surplus above $20 billion,” strategists led by Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, wrote in a note to clients.
Haven currencies may extend their decline next week should the run of better-than-expected data persist. The Mannheim-based ZEW Center for European Economic Research will probably say on Sept. 14 its index of investor and analyst outlooks rose this month to 50, the highest since January 2008, from 44.3 in August, according to the median of 13 estimates in a Bloomberg News survey.
Euro Direction
The euro headed for a weekly loss against the dollar on concern that austerity measures to rein in budget deficits will slow growth. European Central Bank President Jean-Claude Trichet said in an interview published by the Financial Times yesterday that it will take time to wean banks off its emergency lending measures, which policy makers extended last week into 2011.
The outlook for the U.S. economy may improve next week as economists forecast reports will show consumer spending rose for a second month and manufacturing in the New York region expanded.
Sales at U.S. retailers rose 0.3 percent in August and the Federal Reserve Bank of New York’s general economic index climbed to 8 in September from 7.1 the previous month, according to separate Bloomberg News surveys before the figures are released on Sept. 14 and 15.
“The tone of data from the U.S. has improved slightly and gives the sense that an awful lot of the bad news has been written in,” said Robert Rennie, head of currency research in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “The dollar can do better into October.”
Sweden’s krona was the best performer today against the euro and the dollar, rising 0.3 percent to 9.2105 per euro, after a report showed industrial production rose for a fourth month in June as demand for the country’s exports returned.
Seasonally adjusted factory output increased 1.1 percent from May after rising a revised 2 percent the previous month, Stockholm-based Statistics Sweden said in a statement today. Output rose 12 percent from a year earlier. Orders fell 2.5 percent on the month and rose an annual 15.5 percent.
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