The Yen Falls as Measure of Currency Volatility Plunges

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The Yen Falls as Measure of Currency Volatility PlungesThe yen, normally considered a safe-haven currency, plunged against most counterparts as a measure of currency volatility hit the lowest level in over six years, while European stocks gained.

The Bloomberg Dollar Spot Index halted a three-day drop as it awaits the release of Fed’s minutes of its meeting in March. The South Korean won rose by its steepest margin as the market bet the central bank will allow it to accelerate.

“In the short term, we like to sell the yen against commodity currencies as a continuation of the carry trade,” Alvin Tan, a London-based currency strategist at Societe Generale SA told Bloomberg. “In general risk should continue to do well.” The yen will probably weaken to 104 per dollar by June and 110 by year-end, he said.

The yen was 0.3 percent down to 102.06 per dollar as of 6:54 a.m. in New York, the steepest fall since April 1. It also fell 0.3 percent to 140.89 per euro after earlier surging 0.9 percent on Tuesday. The dollar remained slightly unchanged at $1.3802 per euro.

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The Deutsche Bank FX Volatility Index fell for the ninth consecutive day, plunging 0.05 percentage points, or five basis points, to 6.56 percent. The index, which tracks expected currency swings of nine key currency pairs for the next three months, is heading for its lowest close since July 2007.

The won rose 1 percent to end the day at 1,041.55 a dollar in Seoul after earlier surging to 1,040.46, the steepest point since August 2008. This follows remarks by Finance Minister Hyun Oh Seok that the government is focusing more on the currency market volatility instead of the won’s level.

“There were expectations the 1,050 and 1,045 levels will be protected but they were breached easily,” said Kim Do Hee, a Seoul-based currency trader at Australia & New Zealand Banking Group Ltd. “Smoothing operations by the authorities didn’t match market expectations.”

To contact the reporter of this story; Jonathan Millet at john@forexminute.com