Yen Weakens Against Most Major Peers After U.S. Credit Ratings Affirmed

By Masaki Kondo and Mariko Ishikawa - Nov 22, 2011 3:18 PM GMT+0700

The yen weakened against most major counterparts after ratings companies affirmed the U.S. credit grades, sapping demand for Japan’s currency as a haven.

The yen was bought earlier after a U.S. Congress budget supercommittee failed to reach agreement on reducing the budget deficit. The euro gained before data that economist say will show European consumer confidence sank to a two-year low. South Korea’s won slid as Asian stocks fell, reducing the allure of currencies linked to global growth. India’s rupee declined to a record against the dollar.

“The rating companies’ decisions eased excessive risk- averse sentiment, spurring selling of haven currencies such as the dollar and yen,” said Daisaku Ueno, Tokyo-based president of Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency broker. “People are unwinding their positions before holidays in Japan and the U.S.” tomorrow and on Nov. 24 respectively.

The Japanese currency fell 0.5 percent to 104.24 per euro at 8:08 a.m. in London. It dropped 0.2 percent to 77.02 per dollar. The euro was 0.4 percent stronger at $1.3536 after touching $1.3422 on Nov. 17, the lowest since Oct. 10.

South Korea’s won declined 0.4 percent to 1,145.32 per dollar, weakening against all of its 16 major counterparts. The MSCI Asia Pacific Index of shares slid 0.2 percent.

India’s currency dropped past 52.18 per dollar, a level last seen on March 3, 2009, after Standard & Poor’s and Moody’s Investors Service reaffirmed the U.S. government’s credit grades, boosting demand for the greenback.

Deficit Talks

Yesterday was the deadline for the Congressional Budget Office to receive information for analyzing how a proposal would affect the U.S. deficit, in advance of the supercommittee’s Nov. 23 target date for reaching a deal. The failure to agree sets the stage for $1.2 trillion in automatic spending cuts.

“After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline,” panel co-chairmen Representative Jeb Hensarling and Senator Patty Murray said in an e-mailed statement yesterday.

President Barack Obama said he would veto any move to avoid the automatic spending cuts.

S&P said the committee’s failure doesn’t affect the U.S.’s AA+ rating and the negative outlook for the debt. The company stripped the U.S. of its top AAA credit grade on Aug. 5 after months of political gridlock about deficit cuts.

Moody’s affirmed the Aaa credit rating of the U.S. and maintained its negative outlook. Fitch Ratings reiterated that the talks failure would likely lead to a revision of the U.S. rating outlook to negative.

Fed Policy

The Federal Reserve will today release minutes of its Nov. 1-2 meeting when central bank officials lowered their U.S. economic-growth projections. The Fed is lengthening the maturity of its bond portfolio after two rounds of so-called quantitative easing, in which it bought U.S. debt to stimulate the economy through lower borrowing costs.

“Investors need to be aware that QE3 is highly likely in whatever form, maybe not this year, but certainly 2012,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s biggest interdealer broker. “I don’t think we should take the prospect of QE3 off the table.”

The euro has fallen 2 percent over the past 12 months against developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes, as slumping government bonds spurred concern the region’s debt crisis is spreading to bigger nations, including Spain and Italy.

An index of European consumer confidence fell to minus 21 in November, the lowest reading since August 2009, according to a Bloomberg News survey of economists before the European Commission releases the data today.

“You would anticipate the data to be quite soft in Europe tonight and be a dampening factor for the euro,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “Fundamentally we still expect the outlook for the euro to be soft.”

To contact the reporters on this story: Masaki Kondo in Singapore at +65-INR mkondo3@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net