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Yen Climbs as U.S. Debt Limit Spurs Safety Demand; Kiwi Declines - (Bloomberg)

Posted by Chris Advincula on Oct 7, 2013 4:56:00 AM

The yen climbed against all of its major peers after U.S. Treasury Secretary Jacob J. Lew renewed his call for extending the nation’s debt limit to avoid a default, boosting demand for Japan’s currency as a haven.

Switzerland’s franc rose for the third time in four days against the greenback after House Speaker John Boehner said the U.S. could end up in default unless President Barack Obama negotiates, as the government shutdown entered a seventh day. The New Zealand dollar fell as Finance Minister Bill English said the currency is too strong. The pound advanced from near a one-month low against the euro before the Bank of England’s policy meeting this week.

“The deadline to avoid a U.S. government default is approaching, and risk aversion is building,” said Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd., which provides margin-trading services. “The weekend brought no agreement in Washington, and until we have one, the yen is likely to be bought as a haven.”

The yen strengthened 0.6 percent to 96.92 per dollar at 8:54 a.m. London time and added 0.4 percent to 131.56 per euro. The franc gained 0.4 percent to 90.37 centimes per dollar.

The yen tends to strengthen during periods of financial and economic turmoil because Japan isn’t reliant on foreign capital to fund its deficits.

“If the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default,” Lew said on CNN’s “State of the Union” yesterday. “Congress is playing with fire.”

‘More Entrenched’

Boehner said the House can’t pass an increase to the U.S. debt ceiling without packaging it with other provisions. The Obama administration has said it won’t negotiate with Republicans over funding the government or raising the debt ceiling, arguing that it is part of the basic functions of Congress and shouldn’t be used as a point of leverage. The U.S. will run out of its ability to borrow on Oct. 17.

“If anything both sides have become more entrenched in their positions,” Mitul Kotecha, the global head of foreign-exchange strategy at Credit Agricole SA (ACA) in Hong Kong, wrote in a research note today. “Market reaction so far has been relatively muted in the expectation of an agreement, but such hopes may prove optimistic.”

Currency swings as measured by the JPMorgan Global Volatility Index fell to as low as 8.76 on Oct. 4, the least since May 9.

‘Not Suicidal’

“At the end of the day, the view is that these guys might be crazy, but they’re not suicidal,” Richard Jerram, chief economist at Bank of Singapore Ltd., said in an interview on Bloomberg Television. “We should get a deal some time in the next week.”

The dollar has fallen 2.5 percent in the past month, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen is little changed, while the franc has risen 1.6 percent and the euro has gained 0.8 percent. The pound has advanced 0.4 percent.

The dollar’s most accurate forecaster in the past quarter predicts the U.S. currency will rebound against the euro and pound. Hendrix Vachon, an economist and currency strategist at Desjardins Group, a Canadian credit union, foresees a quick resolution to the congressional standoff that will help the greenback rally, as U.S. growth outpaces Europe.

Index Forecast

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, was little changed at 1,009.54, the sixth decline in seven days.

New Zealand’s currency, also known as the kiwi, slipped 0.4 percent to 82.83 U.S. cents and was 1 percent weaker at 80.29 yen. It has gained 3.6 percent and 1.3 percent against its American and Japanese counterparts in the past month.

“The exchange rate, in our view, is still too high,” English said in Wellington after the Treasury published financial statements for the year through June. “It remains a headwind for the export sector.”

The pound rose the most in a week against the dollar before the Bank of England meets this week. It will keep its benchmark rate at a record-low 0.5 percent and its asset-purchase target at 375 billion pounds ($601.5 billion) on Oct. 10, according to economists in separate Bloomberg surveys.

“We’re not going to begin to think about raising interest rates or tightening monetary policy until we see the conditions in the economy where the economy is really growing -- and growing at a sustained pace,” central bank Governor Mark Carney said last week in an an interview with ITV Anglia.

Sterling climbed 0.1 percent to 84.60 pence per euro after touching 84.76 on Oct. 4, the weakest level since Sept. 3. It advanced 0.2 percent to $1.6041.  


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