Yen, Dollar Rise a Second Day Versus Euro on Signs Global Recovery Waning

The yen advanced to 111.59 per euro as of 8:55 a.m. in Singapore from 111.96 in New York last week, after earlier rising to 111.53, the highest level since July 13. Photographer: Tomohiro Ohsumi/Bloomberg

The yen and the dollar advanced fora second day against the euro as signs the global economicrecovery is waning damped demand for higher-yielding assets.

Japan’s currency gained the most against New Zealand’sdollar and South Korea’s won after U.K. home sellers cut pricesfor the first time this year and economists said a U.S. reporttoday will show builders turned the most pessimistic in fourmonths. Australia’s dollar fell to a one-week low after PrimeMinister Julia Gillard called an election, prompting speculationthe central bank will refrain from raising interest rates duringthe campaign.

“There’s enough food for the bears to keep them in controlat this point,” said Sean Callow, a senior foreign-exchangestrategist in Sydney at Westpac Banking Corp., Australia’ssecond-largest lender. “There is some element of risk aversionsupporting the yen and to a lesser extent the dollar.”

The yen rose to 111.77 per euro as of 9:54 a.m. inSingapore from 111.96 in New York last week, after climbing to111.53, the strongest since July 13. Japan’s currency gained 0.7percent to 61.03 per New Zealand dollar, and rose 0.9 percent to14.02 won. The dollar gained to $1.2903 per euro from $1.2930.

Australia’s dollar fell 0.2 percent to 86.69 U.S. centsafter earlier touching 86.34 cents, the weakest since July 8. Itlost 0.1 percent to 75.16 yen.

Home Prices, Confidence

U.K. home asking prices fell 0.6 percent in July to 236,332pounds ($362,000) and will drop 7 percent in the second half,wiping out this year’s gains, Rightmove Plc said in a statement.The National Association of Home Builders/Wells Fargo confidenceindex in the U.S. declined to 16 in July, the least since March,according to a Bloomberg News survey before the report today.

The MSCI Asia Pacific Index of stocks outside Japan dropped1.1 percent after the Standard & Poor’s 500 Index slumped 2.9percent on July 16.

Exchange-rate movements may be volatile in Asia as aholiday in Japan saps liquidity, Callow said. Implied volatilityon one-month euro-yen options climbed to 16.1 percent from 15.4percent on July 16. Higher volatility suggests a greater risk ofexchange-rate fluctuations that can make so-called carry tradesunprofitable.

In carry trades, investors get funds in one currency withrelatively low borrowing costs to invest at higher yields inanother. The benchmark interest rate of 0.1 percent in Japanmakes the yen popular for funding such transactions.

Australian Dollar

Australia’s dollar also declined before the central banktomorrow releases minutes of a July 6 meeting when it saidmonetary policy was “appropriate,” pending further informationon demand and prices. Australia’s statistics bureau will releaseconsumer price data on July 28.

“The RBA won’t raise rates on Aug. 3 during the electioncampaign,” said Alex Sinton, a senior dealer at ANZ NationalBank Ltd. in Auckland. “If the RBA minutes tomorrow say they’rereasonably comfortable with where rates are, then I suspect evenwith an elevated CPI number, they won’t move early August.That’s likely to provide more weakness for the Aussie.”

The Reserve Bank of Australia tomorrow releases minutes ofthe July 6 meeting, when it said monetary policy was“appropriate,” pending further information on demand andprices. The statistics bureau will release consumer price dataon July 28.

New Zealand’s dollar declined for a second day versus thegreenback after the Labour Department said in a report thejobless rate is likely to “remain elevated” over comingquarters and may rise from 6 percent if the participation rateincreases.

The so-called kiwi slid 0.8 percent to 70.49 U.S. cents,and declined 0.6 percent to 61.11 yen.

Hungarian Forint

Hungary’s forint weakened for a second day versus thedollar after the International Monetary Fund and European Unionended talks with Hungary’s government without endorsing PrimeMinister Viktor Orban’s plans to curb the budget deficit.

The IMF said in a July 17 statement it ended its review ofHungary’s 20 billion-euro ($25.8 billion) emergency bailoutbecause “a range of issues remain open.”

The Hungarian government must make “tough decisions,notably on spending,” to comply with deficit requirements, theEuropean Union said. The statements are a blow to Orban’sefforts to rebuild investor confidence after ruling partyofficials raised the spectre of a Greek-like crisis last month.

The currency dropped to as low as 224.77 per dollar, theweakest since July 7, before trading at 224.30 from 218.18.

“The lack of agreement in talks with the IMF and EU islikely to further unsettle the Hungarian forint,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plcin Sydney. “It could be a factor that keeps risk appetite lowto start this week.”