August 14, 2009 / 3:58 PM / 10 years ago

FOREX-Yen rallies amid U.S. economic recovery concerns

* U.S. July CPI sends dollar lower against the yen

* Euro pressured on the day

* Euro zone inflation falls slightly more than estimated (Recasts; updates prices, adds comment)

By Nick Olivari

NEW YORK, Aug 14 (Reuters) - The yen gained against the euro and the dollar after a report showed U.S. consumer sentiment worsened in August, adding to concerns about a recovery for the world’s largest economy and prompting a rise in risk aversion.

The Reuters/University of Michigan surveys showed its preliminary reading of consumer sentiment for August fell to 63.2 from 66.0 in July, and below market expectations for a reading of 68.5. For full story, see [ID:nN14294408]

The report followed an earlier release that showed U.S. consumer prices were flat in July from June, but fell over the past 12 months by the most since 1950. [ID:nN13244265]

The data left the euro pressured against the dollar, but investors bought yen on lower risk tolerance. The trend to risk aversion was apparent earlier in the day when Chinese shares fell 3.0 percent to their lowest close in six weeks.

“It does reinforce the view that there’s still a long way to go before you see a sustainable turnaround in sentiment,” said Samarjit Shankar, director of global strategy at Bank of New York Mellon in Boston. “As we saw from the retail sales numbers yesterday, consumer spending is also not really up to expectations. It just underscores the vulnerability of the recovery so far.”

Midway through the New York session, the dollar was down 1 percent at 94.47 yen JPY=. The greenback was on track for a 3.3 percent fall on the week at current prices.

The euro EURJPY=R fell 1.5 percent to 134.22 yen, and was down 3 percent for the week.

The yen’s gains were also attributed to potential fund repatriation by Japanese investors related to some $57.5 billion in redemptions and coupon payments on U.S. Treasuries next week, said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ in London.

The euro was down 0.5 percent at $1.4211 EUR=, after hitting a session high of $1.4306. Analysts say a recent high of $1.4448 would likely remain a firm level of resistance.

Markets showed little reaction to a 0.7 percent fall on the year in euro zone inflation in July, compared with an initial estimate of -0.6 percent. [ID:nBRQ007481]

That came after data the previous day showed the French and German economies both unexpectedly grew on the quarter in April-June.

The Australian dollar hit an 11-month high against the U.S. dollar earlier in the day after Reserve Bank of Australia Governor Glenn Stevens said that a normal interest rate would be well above the current rate of 3.0 percent. [ID:nSYD342603]

But the aussie last traded down 1.5 percent at $0.8303 AUD=D4 as risk aversion rose.

The New Zealand dollar also touched its highest since September 2008, but gave back its session gains to last trade down 0.2 percent at $0.6773 NZD=D4.

The gains in the New Zealand unit were prompted by a rise in the country’s retail sales data for the first time in nearly two years in the June quarter and the housing market showing more signs of stabilizing, backing views of a gradual recovery. [ID:nWEL433680]

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