Yen weak­ens; in­vestors con­trast rate out­looks

As­set man­agers go ten­ta­tively long carry trades

The Financial Daily - - MONEY & FOREX -

NEW YORK: The yen weak­ened across the board on Wed­nes­day, slid­ing to a 10-month low against the euro, as re­cent hawk­ish com­ments from eu­ro­zone and US of­fi­cials con­trasted with Ja­pan's loose mon­e­tary pol­icy.

The euro rose to around 117.28 yen on elec­tronic trad­ing plat­form EBS, its strong­est since May 2010, and was seen climb­ing more on ex­pec­ta­tions the Euro­pean Cen­tral Bank will start rais­ing in­ter­est rates as early as next month.

Ris­ing risk ap­petite en­cour­aged in­vestors to seek higher-yield­ing as­sets, with the Aus­tralian dol­lar climb­ing to a 29-year high over its US coun­ter­part and a 10-month high against the yen.

"The new high in the Aus­tralian dol­lar, com­bined with weak­ness in yen, sug­gest that the carry trade is build­ing mo­men­tum," said Camilla Sut­ton, chief cur­ren- cy strate­gist at Scotia Cap­i­tal in Toronto. "This could put sig­nif­i­cant weak­en­ing pres­sure on yen, but we would not be sur­prised to see some dol­lar/yen down­side (yen strength) on the back of on­go­ing repa­tri­a­tion in late in April."

The US dol­lar rose to around 83.19 yen, a level last seen on March 11, when the yen ini­tially fell af­ter Ja­pan's earth­quake. It last traded at 82.98 yen, up 0.6 per cent.

Traders re­ported of­fers at 83.30/50, with or­ders said to be thin un­til more sup­ply placed at around 84.00.

Hawk­ish com­ments in re­cent days from US Fed­eral Re­serve and Euro­pean Cen­tral Bank of­fi­cials con­trasted with the stance taken by the Bank of Ja­pan, which is set to leave in­ter­est rates near zero for some time to sup­port the world's third-largest econ­omy as it re­cov­ers from the ef­fects of the earth­quake.

Dal­las Fed Pres­i­dent Richard Fisher said on Tues­day he would vote against fur­ther mon­e­tary eas­ing af­ter the Fed­eral Re­serve's $600 bil­lion bond-buy­ing pro­gram ends in June. The euro was down 0.1 per cent on the day at $1.4097 but up 0.5 per cent against the yen at 116.95 yen on elec­tronic trad­ing plat­form EBS.

The euro is more than 5.0 per cent higher against the dol­lar this year, and its ap­par­ent re­silience to fis­cal prob­lems fac­ing weak euro-zone coun­tries has led some to nick­name it the "Te­flon euro."

Spec­u­la­tion that Ja­panese in­vestors may re­duce dol­lar hedg­ing po­si­tions re­lated to their over­seas in­vest­ments, and the ab­sence of huge repa­tri­a­tion flows fol­low­ing the quake, are shift­ing the fo­cus back to eco­nomic fun­da­men­tals and re­in­forc­ing the yen's sta­tus as a fund­ing cur­rency. The mar­ket's fo­cus on rate dif­fer­en­tials ben­e­fited higher-yield­ing cur­ren­cies such as the Aus­tralian dol­lar, which traded at $1.0322, near a 29-year high of $1.0334 hit ear­lier in the global trad­ing day.

The Aussie traded at 85.61 yen af­ter ear­lier climb­ing to a 10-month high. -Reuters

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.