The yen retreated from the strongest in four weeks against the dollar before the Federal Reserve concludes a two-day policy meeting today.

The yen has been the biggest gainer among the 10-currency Bloomberg Correlation-Weighted Indexes in the past week as tumbling oil prices added to concern the global economy will falter, boosting demand for havens. The ruble collapsed to a record yesterday even after Russia increased borrowing costs to the most since 1998. A gauge of emerging-market currencies fell to a 12-year low. New Zealand’s kiwi declined after the South Pacific nation’s current-account deficit widened.

“Looking toward the FOMC, it’s creating a bit of a cross current — the market may be more reluctant to sell the dollar-yen now than it may have been yesterday,” said Greg Gibbs, the head of Asia-Pacific markets strategy at Royal Bank of Scotland Group Plc in Singapore, referring to the Federal Open Market Committee. The greenback “remains basically in a nervous state, caught somewhere between 115 and 119” yen.

The yen dropped 0.5 percent to 117.04 per dollar at 1:36 p.m. in Tokyo from yesterday, when it touched 115.57, the strongest since Nov. 17. Japan’s currency slid 0.4 percent to 146.16 per euro after advancing 1.6 percent in the previous two sessions. The dollar added 0.2 percent $1.2487 per euro.

West Texas Intermediate crude slid as much as 4.1 percent to $53.60 a barrel yesterday, the least since May 2009, before trading at $54.70. The United Arab Emirates said the Organization of Petroleum Exporting Countries won’t cut production even if prices fall as low as $40 a barrel.

Ruble Tumbles

The ruble lost as much as 19 percent yesterday in the biggest one-day drop in 16 years. Russia’s central bank unexpectedly raised its key interest rate to 17 percent from 10.5 percent, the largest increase since 1998, when rates soared past 100 percent and the government defaulted on debt.

“It’s a panic,” Greg Anderson, Bank of Montreal’s global head of foreign-exchange strategy in New York, said by phone. While the currencies of other oil-producing nations have fallen, “it’s just the magnitude in rubles that’s stunning,” reflecting the illiquidity of the market, he said.

The ruble declined to a record low of 80.10 per dollar yesterday after strengthening as much as 9.8 percent following the decision. It helped drag a Bloomberg index of 20 emerging-market currencies to the lowest level dating back to 2002.

FOMC Decision

In the U.S., FOMC members conclude a two-day meeting today to discuss whether to retain a pledge to keep rates low for a “considerable time.” Signs of acceleration in the world’s biggest economy have contrasted with sluggish global growth. The key rate has remained at zero to 0.25 percent since 2008.

“Dollar-yen moves have been volatile,” said Kazuo Shirai, a trader at MUFG Union Bank NA in Los Angeles. “Commodity-related currencies in emerging markets seem to be in a panic state as oil continues to fall. Where we go from here in dollar-yen depends on the Fed meeting.”

JPMorgan Chase & Co.’s Global FX Volatility Index rose to 10.04 percent yesterday, the highest level since September 2013. It fell to a record 5.28 percent on July 4.

“The Fed is likely to get rid of the ’considerable time’ phrase today,” said Shinji Kureda, the Tokyo-based head of FX trading at Sumitomo Mitsui Banking Corp. “But that could boost speculation of a rate hike in mid-2015, weighing on U.S. stocks and dollar-yen. There is no end in sight yet to declines in oil and commodity currencies.”

Standard & Poor’s 500 Index of U.S. shares dropped 0.9 percent yesterday.

New Zealand’s kiwi fell 0.8 percent to 77.37 U.S. cents.

The nation’s third-quarter current account deficit was NZ$5.01 billion ($3.87 billion), the widest since 2008 and compared with NZ$1.08 billion in the previous three-month period.

 

Source: Bloomberg – Yen Falls From Four-Week High Before Fed as N.Z. Dollar Slides

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