Yen Strengthens on Demand for Havens; Euro Touches 11-Month Low

By Kristine Aquino and Eshe Nelson  

The yen strengthened versus most of its major counterparts as investors sought haven assets before the presidents of Russia and Ukraine meet today. The euro touched an 11-month low against the dollar.
The greenback fell for the first time in seven days against its Japanese peer as U.S. July durable goods orders excluding transportation fell. The euro weakened after European Central Bank President Mario Draghi said at an Aug. 22 conference that inflation expectations have declined, increasing speculation policy makers will expand stimulus. New Zealand’s dollar fell to the lowest in six months after the nation’s trade balance slipped into deficit.
“The main focus for the markets will be how those geopolitical tensions flow through and impact the euro-zone economy,” said Peter Dragicevich, a currency strategist at Commonwealth Bank of Australia in London. The euro has had a
“very gradual decline and that illustrates it’s been driven by macroeconomic divergence. Rate differentials are clearly now in the U.S.’s favor, we can’t see too much near-term upside in the euro.”
The yen strengthened 0.2 percent to 103.89 per dollar as of 8:32 a.m. in New York after touching 104.49 yesterday, the weakest since Jan. 23. It added 0.1 percent to 137.11 per euro. Europe’s shared currency was little changed at $1.3202, up from an earlier low of $1.3179, a level not seen since Sept. 9.

Leaders Meet

Japan’s currency appreciated as demand for havens was bolstered before Russian President Vladimir Putin meets his Ukrainian counterpart, Petro Poroshenko, today in Belarus. Ukraine said yesterday an armored column including 10 tanks entered from Russia as the government in Moscow unveiled plans to send a second convoy with humanitarian aid into its neighbor’s rebel-held territory.
Data showed yesterday the pace of new-home sales in the U.S. fell to the slowest in four months in July.
The 14-day relative strength index for dollar-yen rose to 78.4 yesterday. That was the highest since January 2013 and above the 70 level that signals to some traders an asset has risen too far, too fast, meaning it may be about to reverse course.
“The fact that dollar-yen was overbought might see it pull back a little bit to a more reasonable level,” said Stan Shamu, a market strategist at IG Ltd. in Melbourne. Geopolitics “could be a driver as well, because it strengthens the yen,” Shamu said.
The yen has weakened 0.8 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro has fallen 0.5 percent. The dollar has advanced 1.5 percent, the best performer after the Norwegian krone.
The euro was about 0.1 percent from the lowest level since September before a European Commission report on Aug. 28 that may show its index of executive and consumer sentiment fell this month to 101.5, according to the median estimate of economists surveyed by Bloomberg. That would be the lowest level since February.

Inflation Slowing

A preliminary reading of German inflation due on the same day may show price gains in the euro area’s largest economy stalled in August from the previous month, based on calculations using a harmonized European Union method.
Draghi said last week investor bets on euro-area inflation “exhibited significant declines at all horizons” in August. Policy makers “will use all the available instruments needed to ensure price stability over the medium term,” he said in a speech at a conference in Jackson Hole, Wyoming.
Westpac’s Killen sees Europe’s single currency falling below $1.30 in coming weeks, and said that technical indicators could signal a further slide to $1.275 after that.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, fell 0.1 percent to 1,029.73 after climbing to 1,031.86, the highest level since Feb. 3.
New Zealand’s currency fell against all of its 16 major counterparts after statistics bureau data today showed the nation’s trade deficit in July was bigger than the median estimate of economists surveyed by Bloomberg.
“New Zealand’s July trade balance disappointed,” said Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank of Australia. “Downward pressure on the New Zealand dollar remains, particularly given speculation of RBNZ intervention,” Capurso said in reference to the Reserve Bank of New Zealand.
RBNZ spokesman Angus Barclay said the bank doesn’t comment on market speculation when contacted by Bloomberg yesterday.
New Zealand’s dollar slipped 0.1 percent to 83.36 U.S. cents after touching 83.11, the weakest since Feb. 27.
South Korea’s won strengthened as expected price swings in the currency declined, supporting investor demand. Low volatility makes returns more reliable in a foreign-exchange strategy known as carry trade, which exploits differences in global interest rates. South Korea’s benchmark rate of 2.25 percent compares with near-zero borrowing costs in the U.S., euro area and Japan.
One-month implied volatility dropped 13 basis points, or 0.13 percentage point, to 5.96 percent. The won gained 0.3 percent to close at 1,016.88 per dollar in Seoul.