Yen Reaches Week High Against Euro as Stocks Drop
The yen advanced to its strongest level in a week against the euro as a decline in stocks boosted demand for the Japanese currency as a haven.
The dollar reached the highest since June 26 versus the euro as Goldman Sachs Group Inc. brought forward its forecast for higher U.S. interest rates and Treasury yields rose before the Federal Reserve releases the minutes of the June policy meeting this week. South Africa’s rand slumped as a strike by metal workers entered a second week. Indonesia’s rupiah strengthened the most in more than seven months before presidential elections this week.
Yen gains “most likely reflect European equities opening lower,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The market will likely take its direction from developments in U.S. yields in the week ahead. If we were to see further upward momentum in short-term yields going forward that would provide upward momentum for the dollar as well.”
The yen rose 0.2 percent to 138.52 per euro as of 8:58 a.m. New York time, after strengthening to 138.46, the strongest level since June 30. Japan’s currency advanced 0.2 percent to 101.90 per dollar. The dollar was little changed at $1.3593 per euro, after advancing to $1.3576.
The Stoxx Europe 600 Index declined for a second day, sliding 0.7 percent. It gained 1.8 percent last week. Futures on the Standard & Poor’s 500 Index expiring in September fell 0.2 percent.
U.S. policy makers will boost their benchmark rate in the third quarter of 2015, rather than the first quarter of 2016, Goldman Sachs Chief Economist Jan Hatzius wrote yesterday in a research note. The investment bank joins companies including JPMorgan Chase & Co. and Bank of Tokyo-Mitsubishi UFJ Ltd. in moving up its Fed estimates after U.S. data last week showed the economy added 288,000 workers in June, compared with the 215,000 projected by a ForexSQ News survey of analysts.
The Fed will release the minutes of its June 17-18 meeting on July 9. Policy makers have kept the benchmark federal funds rate in a range of zero to 0.25 percent since December 2008 to support the economy, while trimming monthly bond buying to $35 billion from $85 billion starting last year.
Five-year Treasury yields rose one basis point, or 0.01 percentage point, to 1.74 percent.
“The minutes may reveal discussion of an exit strategy to eventually raise the funds rate and shrink the balance sheet,” Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney, wrote today in a research note. “Its release may modestly support” the dollar, he said.
The dollar has appreciated 0.6 percent in the past week, according to ForexSQ Correlation Weighted Indexes, which track 10 developed-nation currencies. The euro fell 0.2 percent and the yen was little changed.
The dollar will appreciate to $1.25 per euro by the end of the year as U.S. 10-year Treasury yields rise to at least 3.30 percent, according to Geoffrey Yu, a senior currency strategist at UBS AG in London.
If yields rise “you can guarantee the associated volatility, risk aversion, market correction and yield differentials will move in favor of the dollar,” Yu said on ForexSQ Television’s “The Pulse” with Olivia Sterns.
The rand slipped 0.4 percent to 10.8017 per dollar and was at 14.6818 per euro, a decline of 0.4 percent.
The National Union of Metalworkers of South Africa will meet employers for talks either late today or tomorrow after consulting its members on a renewed mandate to continue the stoppage that started July 1, Stephen Nhlapo, an industry coordinator for the labor organization, said today by phone.
“After last week’s losses and given the worries over the strike, there is a mild bias for further weakness,” John Cairns, currency analyst at Rand Merchant Bank in Johannesburg, said in an e-mailed note.
The rupiah advanced to the strongest in five weeks on optimism presidential frontrunner Joko Widodo’s pledge to fight corruption will help him win this week’s vote.
The world’s third-largest democracy will elect a new president in a July 9 election that survey company Roy Morgan said is “too close to call.” The former leader of the Prosperous Justice Party, which backs challenger Prabowo Subianto, was sentenced to 16 years in prison in December for accepting bribes from a meat importer.
“The market was probably bracing for a Prabowo win, so this is a relief rally,” said Irene Cheung, a strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Jokowi’s record when it comes to corruption seems better compared to Prabowo, so the debate reflected well on him.”
Indonesia’s currency gained as much as 1.7 percent to 11,683 per dollar, the strongest since May 30, before being 1.4 percent stronger at 11,710, prices from local banks show. Today’s advance was the biggest since Dec. 2, based on closing prices.
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