Yen, Dollar Remain Lower as Asian Shares Climb, Tankan Improves

Yen, Dollar Remain Lower as Asian Shares Climb, Tankan Improves

2012-07-02 00:09:53.795 GMT

By Masaki Kondo and Mariko Ishikawa

     July 2 (Bloomberg) -- The yen and dollar remained lower against most of their major peers following declines at the end of last week as Asian shares extended a global rally, damping the allure of haven assets.

     The Japanese currency posted the biggest drop in more than a year versus the euro on June 29 after European leaders eased terms on loans to Spanish banks, taking a step toward resolving the region’s debt crisis. Demand for the 17-nation euro was limited before data today that may show the jobless rate in the bloc climbed to a record and manufacturing contracted. Japan’s large manufacturers became less pessimistic in June, the central bank’s Tankan index showed today.

     “Safe assets such as the dollar and yen are being sold amid risk-on sentiment,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency-margin company.

“The outlook for Europe’s economy is still bleak.”

     The yen traded at 100.83 per euro as of 9:05 a.m. in Tokyo after dropping 2.2 percent to 101.04 in New York at the end of last week, the biggest slide on a closing basis since March 2011. The dollar was at $1.2639 per euro after falling 1.8 percent to $1.2667 on June 29. The greenback was little changed at 79.77 yen.

     European Union leaders dropped the requirement that governments get preferred creditor status on crisis loans to Spain’s blighted banks, EU President Herman Van Rompuy said after a two-day summit on June 29. Banks can also be recapitalized directly with European bailout funds rather than being channeled through governments, he said.

     The MSCI Asia Pacific Index rose 0.4 percent, following a 2.5 percent surge on the Standard & Poor’s 500 Index on June 29. The Stoxx Europe 600 Index climbed 2.7 percent.

                            ECB Policy

      “The latest EU summit has clearly bought time for the euro. But it still does not remove the bearish case for the currency,” Mansoor Mohi-uddin, head of foreign-exchange strategy in Singapore at UBS AG, wrote in a note on June 30.

“The market is likely to focus on whether the ECB will cut interest rates” at a July 5 meeting.

     The ECB will probably lower the benchmark rate to 0.75 percent from a record 1 percent, economists forecast.

     The jobless rate in the euro zone probably rose to 11.1 percent in May from 11 percent the prior month, a Bloomberg News Survey of economists shows. It would be the highest on record going back to 1990.

     London-based Markit Economics may confirm its gauge of the currency bloc’s manufacturing was 44.8 in June on a final reading, unchanged from an initial estimate, according to a separate poll of economists. A reading below 50 indicates contraction.

     The quarterly Tankan index of sentiment was minus 1 in June from minus 4 in March, the Bank of Japan said today in Tokyo. The median estimate of 19 economists surveyed by Bloomberg News was for a reading of minus 4. A negative number means pessimists out number optimists.