Major Currencies Analysis: February 2, 2012

Portugal doesn’t present the risk of default that Greece does to the rest of the European Union because officials there are seeking to contain the nation’s financial crisis, according to Fitch Ratings. “The government there is committed and credible. The economy is highly indebted, but they are working on organizing a debt-for-equity swap,” David Riley, head of the sovereign-debt unit at Fitch Ratings, said at a conference in New York today. “That is the right strategy and in the near term we don’t see them as a significant risk to the rest of the euro zone.”Banks in Germany, France, Belgium and the U.K. have the least periphery exposure to Portugal, excluding Ireland, among the debtor nations at the heart of the region’s financial crisis, according to data provided by Fitch at a presentation today. Riley wasn’t immediately available to elaborate on a possible debt-to-equity exchange. Greek bondholders are being pushed to cede more ground after agreeing in October to take a 50 percent cut in the face value of more than 200 billion Euros ($263 billion) of debt. European Union leaders are seeking the concession as the International Monetary Fund projects that Portugal’s gross domestic product will contract 3 percent in 2012.Portuguese yields have fallen for two consecutive days after the 10-year yield closed at a euro-era record of 17.393 percent on Jan. 30. Riley attributed the rise to decision by Standard & Poor’s to follow Fitch and Moody’s Investors Service in downgrading Portugal’s credit rating to non-investment grade on Jan. 13.

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GBP/USD

U.K. stocks rose by the most in a month as manufacturing gauges climbed in China and the U.S., adding to optimism that growth in the world’s two largest economies will boost earnings. BP Plc rallied 2.6 percent after a judge ruled that Europe’s second-biggest oil company doesn’t have to pay any punitive damages awarded against Halliburton Co. from the 2010 Gulf of Mexico oil spill. Johnson Matthey Plc surged to the highest since at least 1989 as the producer of a third of all auto catalysts reported increased profit. The benchmark FTSE 100 Index added 109.11, or 1.9 percent, to 5,790.75 at the close in London. The gauge rose 2 percent in January for its second consecutive month of gains. The advance extended its rally from last year’s lowest level to 15 percent as the European Central Bank boosted lending to banks and U.S. economic reports exceeded estimates. The FTSE All-Share Index and Ireland’s ISEQ each climbed 2 percent today. “The bulls were back in force today as strong manufacturing data worldwide indicated that not only might a   double dip recession in the U.K. be averted, but a global recession as well,” said Angus Campbell, the head of sales at Capital Spreads in London. “With strong economic data indicating the recovery can be sustained now is proving a good time to buy stocks.” 

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USD/JPY

 Japanese shares advanced, with the Topix Index snapping a four-day loss, after All Nippon Airways Co. raised its operating profit forecast and Mitsui O.S.K. Lines Ltd. led shipping companies higher. All Nippon Airways, Asia’s largest listed carrier by sales, jumped 6.8 percent. Mitsui O.S.K. led a rebound among cargo lines after Jefferies Group Inc. boosted its target price. Unicharm Corp. rose 2.1 percent after a report the diaper maker will double its production capacity in India. “Earnings aren’t looking that bad,” said Hisakazu Amano, who helps oversee the equivalent of $29 billion at T&D Asset Management Co. in Tokyo. “Investors aren’t buying across the board, but they’re picking companies that have specific strengths and that are buoying the market.”The Topix, Japan’s broadest gauge of equities, climbed 0.4 percent to 757.96 at the 3 p.m. close in Tokyo, with about five shares rising for every three that fell. The Nikkei 225 Stock Average added 0.1 percent to 8,809.79. Futures on the Standard & Poor’s 500 Index slid 0.2 percent   today. The gauge fell 0.1 percent in New York yesterday after reports showed consumer confidence unexpectedly dropped in January and home prices fell more than estimated in November. 

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USD/CAD

The Canadian dollar advanced to a three-month high versus its U.S. counterpart as stronger global manufacturing data boosted speculation the worldwide economy is growing, stoking investor appetite for riskier assets. Canada’s currency rose beyond parity with the greenback as purchasing-manager indexes from China to the U.S. increased and European Union President Herman Van Rompuy said the bloc has reached a “turning point” in its two-year-old debt crisis. Canadian employers added jobs in January for a second month; economists predicted a report will show Feb 3. Stocks climbed. “The loonie’s doing a bit better on the general positive outlook,” Michael O’Neill , vice president of foreign-exchange trading at RJOFX Canada, a unit of RJ O’Brien & Associates Inc.,said by phone from Toronto. “That’s partly from the China data last night and also in part because Europe hasn’t cratered. There’s also a bit more optimism surrounding the U.S. economy. What good for the U.S. is good for global growth; Canada is along for the ride.” The currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, appreciated 0.4 percent to 99.86 Canadian cents per U.S. dollar at 5 p.m. Toronto time. It touched 99.64 cents, the strongest level since Oct. 31. One Canadian dollar buys $1.0014. The U.S. dollar fell against all except two of its 16 most-traded peers as investors sought higher-yielding assets.

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