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Forex outlook:
The euro rose to a record against the yen as gains in Asian stocks encouraged investors to borrow Japan's currency to fund purchases of higher-yielding assets. Shares in Shanghai and Shenzen reversed declines to spur a regional advance on speculation China's economy will keep growing even after the central bank raised interest rates for a fourth time. Data last week showed an unexpected improvement in U.S. consumer confidence, supporting investor appetite for riskier investments including so-called carry trades.
The euro rose to 163.93 yen and traded at 163.88 at 6:51 a.m. in London from 163.62 in New York May 18. The European currency traded at $1.3515 against the dollar from $1.3509 last week. The dollar was at 121.25 yen from 121.11.
Japan's key rate of 0.5 percent, the lowest among major economies, has also prompted Japanese investors to seek higher- yielding securities. Futures traders have increased bets the yen will decline against the U.S. dollar. Net shorts, which measure positions that profit from a weaker yen, rose to 127,896 on May 15, compared with 112,259 a week earlier, according to the Commodity Futures Trading Commission in Washington.
``Yield-carry lending is still going to be a very hot topic,'' said Tobias Davis, senior currency dealer at Custom House Global Foreign Exchange in Sydney. ``We'd be remaining short the yen,'' which may decline to 123 against the dollar and 165 per euro over the next three to four months, he said. The yen has dropped 4.6 percent versus Australia's dollar and 5 percent against New Zealand's this quarter. Australia's benchmark rate is 6.25 percent and New Zealand's is 7.75 percent. ``There's talk that a lot of mutual funds will be launched the rest of this month and early next,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The yen may weaken'' to 121.40 against the dollar and 164.00 per euro today, he said.
The yield premium investors earn on benchmark two-year U.S. Treasuries over similar-maturity Japanese government bonds rose to 3.94 percentage points on May 18, the most in five weeks. It was at 3.93 percentage points today. German two-year notes yield 3.39 percentage points more than the equivalent Japanese debt, close to the 3.41 point spread on May 17, the widest since August 2002. The European Central Bank's benchmark rate is 3.75 percent.
Gold: Gold rose in Asia as a decline in the value of the dollar boosted the appeal of the precious metal as a hedge against the U.S. currency. Silver also advanced. Gold for immediate delivery advanced as much as $2.35, or 0.4 percent, to $664.10 an ounce, and traded at $662.88 earlier. Silver for immediate delivery gained 9 cents, or 0.7 percent, to $13.03 an ounce , extending the 0.8 percent gain on May 18. Demand from physical buyers was seen at $650 an ounce recently, ``a good indication that buyers are getting used to higher prices'', said Commodity Broking's Barratt. ``This is encouraging because these levels might become the new floor prices if we see market dip too much.'' Gold for June rose as much as $2.60, or 0.4 percent, to $664.60 an ounce, and traded at $663.30 on the Comex division of the New York Mercantile Exchange.
Crude Oil: U.S. crude oil futures steadied at the close on Friday, helped by light short-covering ahead of the weekend, after dropping earlier as traders pocketed profits from Thursday's hefty gains. Gasoline futures ended down on a flurry of pre-weekend profit-taking, after failing to follow through after rising slightly ahead of Thursday's high, traders said. Traders said gasoline corrected from recent sharp gains but the market remained edgy amid refinery snags ahead of summer driving season and peak demand. On the New York Mercantile Exchange, June crude settled 8 cents higher or 0.1 percent, at $64.94 a barrel, trading from $64.71 to $65.64. It jumped $2.31 on Thursday.
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