Euro Advances Against Yen on German Confidence; Lira Strengthens

dollar yen The euro strengthened from a seven-week low against the yen after a gauge of business confidence in Germany rose to a 2 1/2-year high, signaling economic growth in Europe’s largest economy is accelerating. South Africa’s rand dropped versus all but two of its 16 major peers and South Korea’s won declined for a sixth day as emerging-market equities extended their biggest decline since November. Turkey’s lira rebounded from a record low after the central bank said it would stablize prices. The yen fell for the first time in three days against the U.S. currency as a report showed Japan’s trade deficit widened to a record last year. Australia’s dollar rose from a 3 1/2-year low. “The euro is being supported by improvement in the growth outlook as economic data, especially from Germany, showed improvement,” said Kathleen Brooks, European research director at Forex.Com in London. “We see room for further upside for safe-haven currencies due to the risk aversion in the market.” The euro appreciated 0.5 percent to 140.61 yen at 7:25 a.m. New York time after touching 139.20 yen, the weakest level since Dec. 6. The 18-nation currency was little changed at $1.3670 after rising $1.3717. The Japanese currency slipped 0.5 percent to 102.86 yen per dollar. The Ifo institute’s German business climate index, based on a survey of 7,000 executives, advanced to 110.6 in January from 109.5 in December. Economists predicted an increase to 110, according to the median of 45 estimates in a Bloomberg survey.

Rand, Lira

Exchange rates across the developing world are tumbling as a contraction in Chinese manufacturing adds to investor concern that the Federal Reserve’s withdrawal of monetary stimulus will hamper growth. Deadly protests from Ukraine to Thailand are worsening the exodus, while Argentina’s unexpected devaluation of its peso last week dented confidence in Latin America. The South African currency fell 0.2 percent to 11.1117 per dollar after reaching 11.2541, the weakest since October 2008. The won declined 0.3 percent to 1,083.61 per dollar in its longest run of losses since March. It earlier touched 1,087.50, the weakest since Sept. 13. Turkey’s lira rose 1.1 percent to 2.3107 per dollar, erasing a decline to a record 2.3900, after the Turkish central bank said it would “take the necessary policy measures” to stabilize prices at an extraordinary meeting tomorrow.

Trade Deficit

Japan’s trade shortfall widened in 2013 to a record 11.5 trillion yen, a finance ministry report showed in Tokyo. That’s almost double the previous year’s as energy shipments and weakness in the currency pumped up the import bill. “The trade deficit is a factor for yen weakness over the medium- to long-term,” said Kengo Suzuki, the chief currency strategist at Mizuho Securities Co. in Tokyo, a unit of Japan’s third-biggest financial group by market value. Today’s data triggered some yen selling, he said. The yen also underperformed the U.S. dollar due to interest-rate differentials. The yield on 10-year U.S. Treasury bonds rose four basis points, or 0.04 percentage point, to 2.76 percent, widening the rate premium over Japanese government debt to 212 basis points. That’s higher than the average of 163 basis points over the past five years. The Japanese currency gained 3.5 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as the selloff in emerging markets fueled demand for haven assets. The euro rose 0.2 percent and the dollar strengthened 0.8 percent.

Fed Policy

The dollar outperformed the yen and the Swiss franc before the Fed’s two-day policy meeting starting tomorrow. The Federal Open Market Committee will reduce monthly asset purchases, now at $75 billion, by $10 billion at each meeting to end the program this year, according to the median forecasts of analysts in a Jan. 10 Bloomberg News survey. “The biggest focus for this year’s global economy is upside risks to the U.S.,” Yunosuke Ikeda, the Tokyo-based head of foreign-exchange strategy at Nomura Securities Co., said in a conference call today. “The widening U.S.-Japan yield differentials will steer the yen to gradual weakness” on top of yen selling amid trade deficits, he said. Australia’s dollar rose for the first time in three days, advancing 0.8 percent to 87.48 U.S. cents after reaching 86.60 cents on Jan. 24, the weakest since July 2010.