Dollar Gains Against Euro After Obama Victory in U.S. Election

By Stanley White

Nov. 5 (Bloomberg) -- The dollar gained against the euro on speculation Barack Obama's victory in the U.S. presidential election and Democrat gains in Congress will accelerate policies aimed at overcoming a recession.

The currency also rose against the British pound and the Australian dollar as television networks projected 338 electoral votes for Obama to 156 for Republican rival John McCain, who conceded defeat. The Democrats won four Senate seats from the Republicans. The euro declined versus the yen after European Central Bank member Juergen Stark signaled support for further interest-rate cuts to bolster the region's shrinking economy.

``This is a victory by a big margin and suggests a stable government, making it easy for Obama to conduct policy,'' said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Co. in Tokyo. ``The dollar is likely to be bought further.''

The dollar rose to $1.2860 per euro at 2:53 p.m. in Tokyo from $1.2981 late yesterday in New York. It was quoted at 99.37 yen from 99.70 yen. The euro fell to 127.88 yen from 129.47. The dollar may climb to $1.25 versus the euro this week, Uchida forecast.

The U.S. currency advanced to 68.92 U.S. cents per Australian dollar from 69.88 and gained to $1.5849 against the pound from $1.5956. The victory puts Obama and his party in firm control of the federal government for the first time since the early 1990s.

Three weeks ago, Obama increased the proposed cost of his ``middle-class rescue plan'' to $175 billion from $115 billion. He will be able to seek support for stimulus spending when Congress returns in less than two weeks for a session under Republican incumbent George W. Bush.

Weak Economy

Gains in the dollar may be limited by speculation the U.S. economy lost jobs for the 10th consecutive month. Nonfarm payrolls shrank by 200,000 in October, according to a Bloomberg survey before the report on Nov. 7.

``We're seeing a congratulatory bounce in the dollar,'' said Kengo Suzuki, currency strategist in Tokyo at Shinko Securities Co. ``It's not likely to continue. The U.S. economy is in a weak state, and there all still a lot of questions about what type of policies Obama will put into place.''

The 15-nation euro fell against the yen as Stark's comments, cited by the Financial Times Deutschland in an interview, bolstered expectations the ECB will lower its 3.75 percent benchmark rate at a meeting tomorrow.

ECB's Stark

``We're ready to use all instruments at our disposal and the main instrument is interest-rate policy,'' Stark was quoted as saying. The inflation environment ``dramatically changed,'' he added.

The ECB will lower its main refinancing rate by a half- percentage point to 3.25 percent tomorrow, according to all 54 economists in a Bloomberg News survey.

``Our basic view is euro depreciation,'' said Osamu Takashima, chief analyst for global market sales and trading in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's largest publicly listed lender. ``Economic momentum in the euro- zone has decreased dramatically. I expect the ECB to continue monetary easing into the first half of next year.''

The euro may fall to $1.18 in the third quarter of next year, he said.

The South Korean won rose to 1,267 per dollar from 1,288.25 in late Asian trading as Asian stocks tracked a rally on Wall Street. The MSCI Asia Pacific Index gained 4.2 percent after U.S. shares posted their biggest presidential Election Day rally in 24 years.

Derivatives Regulation

Asian regulators may limit currency derivatives after losses helped push the South Korean won to a decade low, led to lawsuits in India and caused shares of China's Citic Pacific Ltd. to collapse.

South Korea will announce measures by December to restrict company purchases of the contracts to a percentage of overseas earnings, Hyeon Jung Gun, head of Korea's Financial Supervisory Services derivatives market team, said in a Nov. 3 interview. China plans to improve monitoring of performance and compliance. Hong Kong is investigating improper sales of financial products by banks.

The yen's real effective exchange rate, a measure of the currency's value against those of Japan's trading partners after adjustments for price trends, rose 11.2 percent in October from the previous month, the biggest gain on record, Bank of Japan data showed today. The index was at 111.1, the highest since August 2005.

Yen Strength

``The yen is the strongest currency,'' said Yuji Kameoka, senior economist and currency analyst at Daiwa Institute of Research in Tokyo. ``A global economic slowdown and declining asset prices will lead to further yen gains.''

Japan's currency may rise to 91 per dollar and 115 versus the euro this year, he said.

The pound also fell after a report showed Britain's construction industry contracted in October at the fastest pace in more than a decade. The Bank of England will cut its main interest rate by a half-percentage point to 4 percent tomorrow, according to the median forecast of 60 economists surveyed by Bloomberg News.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net