By Ron Harui and Stanley White
Feb. 2 (Bloomberg) -- The yen rose for a third day against the dollar and the euro before a U.S. report that economists estimate will show manufacturing fell to the lowest level since 1980, adding to signs a global slowdown is worsening.
The yen also advanced for a third day versus the Australian and New Zealand dollars on speculation Japanese companies will bring home their overseas earnings before the fiscal year ends next month. The euro slid to the weakest in almost two months versus the greenback and the British pound fell the most in 10 days on concern policy makers in the 16-nation region and the U.K. will cut interest rates as economic growth stalls.
“The yen is likely to be the strongest currency for some time,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “There isn’t much that’s positive about the economic outlook. Investor flows back into the yen are likely to pick up pace.”
The yen advanced to 89.80 per dollar as of 10:07 a.m. in Tokyo from 89.92 late in New York on Jan. 30. Against the euro, Japan’s currency gained to 114.43 from 115.23. The euro fell to $1.2742 from $1.2813. The pound declined 0.8 percent to $1.4424 from $1.4540. The yen may appreciate to 89.15 versus the dollar and the euro may weaken to $1.2675 today, Soma said.
Against the yen, Australia’s dollar fell 0.5 percent to 57.03, New Zealand’s dollar declined 0.5 percent to 45.61 from late in New York on Jan. 30. The MSCI Asia-Pacific Index of regional shares slid 1.5 percent and the Nikkei 225 Stock Average slipped 1.9 percent.
Bets on Yen
Futures traders increased bets the yen will strengthen against the dollar, 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 an advance in the yen compared with those on a drop -- so-called net longs -- was 49,007 on Jan. 27, compared with net longs of 47,090 a week earlier.
The Institute for Supply Management’s factory index, due today, fell to 32.5 in January from a revised reading of 32.9 the prior month, according to a Bloomberg News survey of economists. A reading of 50 is the dividing line between growth and contraction.
The yen also strengthened versus all of the 16 most-active currencies today on speculation Japanese investors will bring home cash to settle accounts before the nation’s fiscal year-end on March 31.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock-market price changes that is used as a measure of risk aversion, gained for a second day, rising 5.2 percent to 44.84 on Jan. 30.
‘Repatriate Capital’
“Japanese investors tend to repatriate capital during periods of heightened risk aversion,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “The yen could retest the record high of 55 against Australia’s dollar this week.”
The Reserve Bank of Australia will cut its benchmark interest rate by 1 percentage point to 3.25 percent at a meeting tomorrow, the lowest level since 1964, according to a Bloomberg survey of economists.
The pound fell against the dollar for the first time in more than a week on speculation the Bank of England will trim borrowing costs to combat a recession.
The U.K. central bank will lower rates by half a percentage point to 1 percent when it announces a policy decision on Feb. 5, according to a separate Bloomberg survey.
Home Prices
Luxury home prices in London fell 3.7 percent from a month earlier, the second-biggest decline on record, Knight Frank LLP said in an e-mailed statement Jan. 31. In the past 12 months, prices have slumped 21 percent, the biggest annualized drop recorded by the property consultancy, as a housing slump rippled through the economy.
“Traders are looking for the chance to sell the pound,” said Saburo Matsumoto, senior manager in Tokyo of foreign- exchange sales at Sumitomo Trust & Banking Co., Japan’s fifth- largest bank by market value. “There’s no denying that U.K. rates are headed lower.”
Sterling may decline to $1.40 in the next few days, he said.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net.
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