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Yen Falls From 3-Week High as Russia Eases Tension; Krone Gains

Aug. 11 (Bloomberg) -- The yen dropped from a three-week high as concern eased about tensions in Ukraine after reports last week that Russia’s warplanes ended drills and the nation is seeking to mediate between Kiev and rebel forces.

The euro fell toward the lowest versus the dollar since November as data showed investors held the largest positions in two years betting on a decline in the currency. The dollar held gains from last week against most Group of 10 currencies before a report this week economists said will show retail sales grew for a sixth month in July. Indonesia’s rupiah rose on bets judges will dismiss a challenge to incoming president Joko Widodo’s election victory. Norway’s krone advanced.

“Market sentiment seemed to have improved and that reduced demand for safe-haven currencies such as the yen,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “Things appear to have calmed down a bit. That said, there is still some fragility in sentiment. My sense is that the market will bolt back into the yen on any negative new development about the geopolitical tension.”

The yen weakened 0.1 percent to 102.14 per dollar as of 8:18 a.m. New York time, after reaching 101.51 on Aug. 8, the strongest since July 24. The euro depreciated 0.2 percent to $1.3390 after reaching $1.3333 on Aug. 6, its weakest level since Nov. 8. Japan’s currency strengthened less than 0.1 percent to 136.76 versus the euro.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 developed-market peers, was little changed at 1,021.67, holding four straight weeks of gains.

Net Shorts

Futures traders’ bets that the euro will decline against the dollar rose to the most since August 2012, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on depreciation in the euro compared with those on a rise -- net shorts -- was 128,747 in the week through Aug. 5, compared with 108,075 a week earlier.

Interfax reported that Russia’s Defense Ministry said last week that warplanes ended drills in the region near Ukraine. RIA Novosti said Russia is ready to mediate between Ukraine and the rebels, citing Russian Security Council head Nikolai Patrushev.

The conflict continued today, with Ukraine telling residents of separatist strongholds in its easternmost regions to flee as government troops close in after dismissing a cease- fire offered by the militants.

‘Selling Pressure’

“If the Ukrainian government and pro-Russian separatists engage in a dialog, stock gains and a rise in Treasury yields could spur some dollar buying,” said Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd., which provides margin- trading services. “The yen is likely to come under selling pressure as geopolitical risks take a back seat.”

The yen declined as Japanese stocks rose after the nation’s Health Ministry said the 126.6 trillion-yen Government Pension Investment Fund has flexibility with deviation limits on assets.

Removing the limits would enable GPIF to allocate more of its holdings to domestic stocks before changing its target for the asset class in a review. The fund is expected to boost its goal for local shares to about 20 percent of its portfolio around September from the current level of 12 percent, according to median estimate from a Bloomberg survey of analysts in May.

Shares Climb

The Topix index of Japanese shares jumped 2 percent, its biggest advance since April 16. The MSCI Asia Pacific Index added 1.2 percent and the Stoxx Europe 600 Index gained 1.1 percent. Futures on the S&P 500 Index were up 0.4 percent.

Futures traders increased their bets that the yen will decline against the U.S. dollar to the most in almost five months, figures from the CFTC show. Net shorts were 95,399 in the week ended Aug. 5, the most bearish since March 14.

An Indonesian court last week questioned evidence provided by losing presidential candidate Prabowo Subianto, who says Widodo’s victory is invalid because it was obtained “unlawfully” or through “abuse of authority” by the election commission. Chief Justice Hamdan Zoelva ordered the commission, the election supervisory agency and Widodo’s legal team to respond to the suit by today.

The rupiah advanced 0.8 percent to 11,685 per dollar, the biggest gain since July 23, prices from local banks show.

Volatility Increases

A gauge of currency price swings rose to a two-month high last week. JPMorgan Chase & Co.’s Global FX Volatility Index was at 6.15 percent after reaching 6.33 percent on Aug. 7, the most since June 4 and up from an all-time low on a closing basis of 5.29 percent on July 3.

U.S. retail sales increased 0.2 percent last month after a 0.2 percent advance in June, according to the median estimate of economists surveyed by Bloomberg News before the Commerce Department figures on Aug. 13.

The Federal Reserve cut monthly bond purchases by $10 billion for a sixth consecutive meeting last month to $25 billion. The next policy decision is due on Sept. 17. Futures traders are pricing in a 70 percent chance of an increase in the Fed’s benchmark rate to at least 0.5 percent by September 2015.

Aggregate net futures positions wagering on gains in the U.S. currency against major peers -- the yen, euro, pound, Swiss franc, Mexican peso and the dollars of Australia, Canada and New Zealand -- rose 115,893 to 129,190 in the week ended Aug. 5, the biggest increase in bullish bets since February 2013.

“U.S. dollar-long positioning still seems to be a favorite of the market, and that’s all coming from the U.S. data,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “The U.S. is definitively making progress toward the Fed’s twin goals, and the market is debating the timing of the first rate hike, and has been bringing it forward.”

Norway’s krone strengthened versus all of its 16 major peers as a report showed consumer prices increased in the 12 months through July more than economists forecast. The krone gained for a fourth day versus the U.S. currency, appreciating 0.8 percent to 6.1842 per dollar.

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