Yen Approaches Record High Before Europe Summit; Aussie Slides
Oct. 26 (Bloomberg) -- The yen rose toward a post-World War II high versus the dollar as concern that Europe's leaders will struggle to find a solution to the debt crisis at an emergency summit today boosted demand for the safest assets.
The Swiss franc also gained before Europe's policy makers meet in Brussels in an attempt to extinguish what U.S. Treasury Secretary Timothy F. Geithner called the "catastrophic risk" of the turmoil. The Dollar Index fell toward a six-week low amid speculation a weakening economy will spur the Federal Reserve to start a third round of asset purchases, or quantitative easing. Australia's dollar slid after a report showed inflation slowed.
"With the uncertainty about what's going to happen in Europe, the market has every reason to be more risk averse and that suggests that the yen will be in demand," said Jane Foley, a senior currency strategist at Rabobank International in London. "It's going to be a very tense session because Europe's meetings don't start until later in the day."
The yen rose 0.3 percent to 75.88 per dollar at 9:31 a.m. London time, after strengthening to a record 75.74 yesterday. The currency gained 0.2 percent to 105.62 per euro. The franc advanced 0.5 percent to 87.34 U.S. cents. The dollar fell 0.1 percent to $1.3926 per euro after weakening to $1.3960 yesterday, the lowest since Sept. 8.
Europe's summit comes after six days of haggling among finance ministers, central and commercial bankers, chancellors, presidents and prime ministers over the shape of a second bailout for Greece, the recapitalization of banks and the retooling of the 440 billion-euro bailout fund into a more potent weapon.
'Under Deliver'
The 14th crisis summit in 21 months starts with a meeting of all 27 European Union leaders at 6 p.m. in Brussels. A meeting of finance ministers originally scheduled for today was canceled yesterday.
"The risk is policy makers will under deliver" at the European summit, said Grant Turley, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. "The yen is one of the few safe havens left. People are happy to be holding yen in preference to other things."
The Dollar Index fell for the sixth time in seven days before reports that economists said will show durable goods order fell in September and new-home sales stagnated, boosting speculation the Federal Reserve will start a another round of quantitative easing to spur growth.
Bookings for equipment meant to last at least three years dropped 1 percent, after rising 0.1 percent in August, according to a Bloomberg survey. Home sales increased to a 300,000 annual rate from 295,000 pace in August, a separate survey showed.
'Weaker Dollar'
"If you look beyond the euro crisis and switch back to the U.S. dimension then there's a case for a weaker dollar," said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. "We could easily see markets switch their focus to the problems there."
The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of six U.S. trading partners, dropped 0.1 percent to 76.145 after declining to 75.94, the lowest since Sept. 8.
The Fed's Open Market Committee will gather for a meeting Nov. 1-2. Officials decided last month to replace short-term debt in its portfolio with longer-term Treasuries to reduce borrowing costs further and counter recession risks.
The dollar has depreciated 3.3 percent this year, the second-worst performer among 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has gained 4 percent and the euro has advanced 1.1 percent, the indexes show.
Japan Easing
Bank of Japan officials will discuss more monetary easing at a meeting tomorrow, the Nikkei newspaper reported. Measures to mitigate the impact of the strong yen on Japan's economy may include expanding a 50-trillion yen asset purchase program by 5 trillion yen and purchasing bonds with maturities longer than two years, the Nikkei said without citing anyone.
"I've ordered my staff to be prepared to take action at any time," Azumi told reporters in Tokyo. He declined to comment on the timing of any yen sales in parliament today and said conducting coordinated intervention in the currency market is a "difficult thing."
The Australian dollar depreciated for a second day after the statistics bureau said the consumer price index rose 0.6 percent last quarter from the previous three months, when it gained 0.9 percent.
"The weak CPI release sparked some speculation that the RBA may cut interest rates as soon as the next meeting," Rabobank's Foley said. "That's pressuring the Aussie dollar."
Australia's currency weakened 0.7 percent to $1.0360, and dropped 0.89 percent to 78.65 yen.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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