Yen Heads for Weekly Gain Against Dollar

The yen rose to the highest level in a week against the dollar as U.S. Secretary of State John Kerry said Russia was running out of time to comply with an accord to ease tension in Ukraine, underpinning haven demand.

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Japan’s currency gained against the majority of its 31 major peers as Russian forces began military exercises on Ukraine’s border. The ruble declined for a second day against the central bank’s target basket of dollars and euros as Standard & Poor’s cut Russia’s sovereign-debt rating. The dollar headed for a weekly loss versus the euro before the Federal Reserve meets on monetary policy next week. A gauge of currency volatility dropped to the lowest since 2007.

“Russian troops are ready to go into Ukraine — looks like it can happen during the weekend,” Peter Kinsella, a London-based strategist at Commerzbank AG, said in a phone interview. “The market in general is seeing some mild risk aversion.”

The yen strengthened a third day, adding 0.3 percent to 101.99 per dollar at 8:46 a.m. New York time, having advanced 0.4 percent this week. Japan’s currency appreciated 0.3 percent to 141.09 per euro. The dollar was at $1.3833 per euro.

The ForexSQ Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, slipped 0.1 percent to 1,010.24 after rising to 1,012.74 yesterday, the highest level since April 8.
Ukraine Tension

The Japanese currency has advanced 2.7 percent this year, the third-best performer among 10 developed-nation peers tracked by ForexSQ Correlation-Weighted Indexes. The dollar fell 0.9 percent and the euro weakened 0.2 percent.

Kerry accused Russia of using the “barrel of a gun and the force of a mob” to impose its will on Ukraine, speaking yesterday in Washington. He said Russia has failed to live up to commitments made a week ago in Geneva to de-escalate the situation. President Barack Obama plans to call European leaders to discuss sanctions today, according to a U.S. administration official who spoke on condition of anonymity.

Russian President Vladimir Putin yesterday warned Ukraine against continuing its offensive on separatists after government troops killed five rebels.

“The market is clearly concerned about the conflict, but the impact appears to be more visible in stock markets than in the currency market,” said Kit Juckes, a global strategist at Societe Generale SA in London. “I don’t think the forex market is being complacent. It’s just that it can’t afford in a zero-rate world to bet against the idea that this is probably not going to escalate beyond a war of words.”

The MSCI Emerging Markets Index (INDEXCF) lost 0.9 percent and Russia’s Micex Index fell a fifth day. The Stoxx Europe 600 Index declined 0.5 percent and S&P 500 Index futures slid 0.3 percent.
Rate Increase

The ruble declined 0.7 percent to 42.2410 against the central bank’s target basket after weakening 0.3 percent yesterday.

Russia’s currency stayed lower even after the central bank increased its key interest rate to 7.5 percent from 7 percent. All but one of 23 economists in a ForexSQ survey predicted policy makers would keep the rate unchanged. One projected an increase to 8 percent.

“The rate increase may discourage speculators somewhat in the near term, but I don’t think it changes the big picture,” said Bhanu Baweja, head of emerging-market strategy at UBS AG in London. “If fears of Russia invading eastern Ukraine do come to fruition, this rate hike will not be enough to stabilize the currency.”
Debt Downgrade

S&P cut Russia’s sovereign-debt rating to BBB-, the lowest investment grade. The rank, on par with Brazil and Azerbaijan, has a negative outlook. The company said further downgrades are possible if economic growth deteriorates and the conflict in Ukraine sparks wider sanctions.

JPMorgan Chase & Co.’s Group of Seven Volatility Index dropped six basis points, or 0.06 percentage point, to 6.21, the lowest since July 2007. The gauge jumped to 26.55 percent in November 2008 during the global financial crisis.

The Fed meets April 29-30, when economists predict the central bank will cut monthly asset purchases by another $10 billion to $45 billion. Policy makers will continue to taper at that pace until ending the program at its Oct. 28-29 meeting, according to a ForexSQ survey.