By Ron Harui
Jan. 12 (Bloomberg) -- The euro fell for a second day against the dollar as traders raised bets that the European Central Bank will cut interest rates to the lowest since 2005 at its Jan. 15 meeting.
The currency also dropped to a one-month low versus the yen as Bank of America and Deutsche Bank AG forecast the 16-nation region’s economy will contract 2.5 percent this year. The difference in yield between two-year German and Japanese government bonds narrowed to the least in 18 years, according to data compiled by Bloomberg.
“A large portion of the euro’s demise has been predicated on the view that the ECB is falling behind the curve,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. “The market has priced in a 50 basis-point rate cut from the ECB.”
The euro dropped to $1.3405 as of 10:12 a.m. in Tokyo from $1.3476 late in New York on Jan. 9. The currency also declined to 120.73 yen from 121.81 yen. It touched 120.42 yen, the weakest since Dec. 12. Against the British pound, the euro traded at 88.84 pence from 88.78 pence.
The yen rose to 90.07 per dollar from 90.39 late in New York on Jan. 9. It also climbed to 62.80 against Australia’s dollar from 63.59 and gained to 52.91 versus New Zealand’s dollar from 53.49. It advanced the most against South Korea’s won, rising 1.3 percent to 15.03886.
‘Soft’ Data
Thirteen of the 16 most-active currencies strengthened against the euro as traders increased bets that the ECB will cut its 2.5 percent benchmark interest rate at this week’s meeting. The implied yield on the Eonia forward contract fell to 1.748 percent on Jan. 9 from 1.813 percent on Jan. 8. Eonia is the euro overnight index average.
The difference in yield between Japanese and German two-year notes narrowed to 1.13 percentage points on Jan. 9 from 1.21 percentage points on Jan. 8, the least since 1990.
“The recent run of soft euro-zone data has heightened expectations that the ECB will cut by 50 basis points to 2 percent and concern about the euro-zone outlook will likely keep the euro-dollar defensive early this week,” Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington, wrote in a research note today.
Accelerating job cuts and declining investment may shrink the European economy by 2.5 percent in 2009, according to Bank of America and Deutsche Bank AG. That’s five times the rate of contraction the ECB staff projected last month.
Nordic Currencies
The world’s biggest foreign-exchange traders are snapping up Sweden’s krona and Norway’s krone.
Current-account surpluses and forecasts by the Organization for Economic Co-operation and Development that Nordic economies will avoid the worst of the global recession made the currencies Goldman Sachs Group Inc.’s top picks for 2009, with potential gains of more than 17 percent.
Deutsche Bank, the biggest trader in the $3.2 trillion-a-day market, said last week the krone and krona are “well placed” for a rebound.
“It’s pretty clear the Scandinavian currencies weakened excessively last year,” said Thomas Stolper, a foreign-exchange analyst at Goldman Sachs in London. “These economies should hold up better than euroland and with improvements in market conditions some of this misalignment will be reversed.”
Stocks Fall
Japan’s currency gained for a fourth day against the Australian and New Zealand dollars before a U.S. government report this week that may show retail sales contracted for a fifth month in December, adding to signs the recession in the world’s largest economy is deepening.
Asian stocks fell, following losses in Europe and the U.S. on Jan. 9. The MSCI Asia-Pacific Index of regional shares excluding Japan dropped 1.2 percent. Japan is closed today for a public holiday.
“The bias remains for more upside for the yen on the crosses, with risk aversion back in play on continued dismal readings” for the global economy, RBC’s Trinh said.
Sales at U.S. retailers declined 1.2 percent last month, capping the longest stretch of declines since records began in 1992, according to a Bloomberg News survey of economists. The Commerce Department will release the report on Jan. 14.
Implied volatility on one-month Australian dollar options against the yen rose to 32.79 percent from 32.44 percent on Jan. 9, indicating greater exchange-rate fluctuation risks that can erode profit on so-called carry trades.
In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits. Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S.
To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net
Posts
No comments:
Post a Comment