Dollar Rises After GM Says May Not Need More Government Funds

By Stanley White

Jan. 7 (Bloomberg) -- The dollar rose for a sixth day against the yen, the longest run of gains in two years, after General Motors Corp. said rescue loans already pledged by the government should ensure the biggest U.S. automaker’s survival.

The dollar also advanced for a fourth day versus the euro on speculation U.S. President-elect Barack Obama’s $775 billion package of tax cuts and government spending will help the economy recover from a recession. The 16-nation euro also fell against the yen as derivatives showed investors are betting the European Central Bank will lower its key interest rate by at least a quarter of a percentage point next week.

“The news about GM is a plus factor for the dollar,” said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Co. in Tokyo. “There are also rising expectations about how far Obama will go to revive the U.S. economy, making it difficult to bet on dollar declines.”

The dollar rose to 93.83 yen at 11:44 a.m. in Tokyo from 93.65 yen late yesterday in New York, when it touched a five- week high of 94.63 yen. Against the euro, it was at $1.3491 from $1.3536. The dollar appreciated to $1.3313 per euro yesterday, the strongest since Dec. 12. The euro slid to 126.55 yen from 126.75. The dollar may rise to 94.25 yen today, Uchida said.

The greenback rose to 1.1173 Swiss francs from 1.1145. It also appreciated to $1.4883 per British pound from $1.4917. The South Korean won strengthened to 1,289.85 per dollar from 1,312.70 as overseas investors added to their holdings of the nation’s stocks.

Auto Rescue

The U.S. Treasury has pledged as much as $13.4 billion in aid to help GM pay its bills and $6 billion to prop up lender GMAC LLC, which GM relies on for auto loans and dealer support.

GM received the first $4 billion on Dec. 31 from the Troubled Asset Relief Program administered by the Treasury. The company said it is spending that money to pay bills, mostly to its 3,000 suppliers.

Obama, who takes office on Jan. 20, is pushing for tax cuts worth $500 for individuals, according to a House Democratic aide, and his economic stimulus plan includes the largest infrastructure investment since the 1950s.

The euro traded at 90.59 British pence from 90.70. It has declined by 5.3 percent in the last two days, the biggest drop since the currency’s debut in 1999, on speculation slowing inflation will give the ECB room to cut interest rates to tackle a recession.

European producer prices probably fell 1 percent in November, according to the median forecast of economists surveyed by Bloomberg News before the data is released at 11 a.m. in Luxembourg today. October’s 0.8 percent decline was the biggest in 22 years.

ECB Rates

Consumer prices in the euro-zone rose 1.6 percent in December, the slowest pace of gains in two years, data yesterday showed. The ECB aims to keep inflation below 2 percent.

The central bank cut interest rates by 1.75 percentage points since early October to 2.5 percent as the region entered a recession. Policy makers will lower the main rate by at least a quarter of a percentage point at the next meeting on Jan. 15, according to a Credit Suisse Group AG gauge of probability, based on overnight index-swap rates.

“The euro looks heavy and is vulnerable to selling on rallies,” said Akio Shimizu, chief manager of foreign exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed bank. “The ECB will have to lower interest rates at some point to respond to the state of the economy.”

The euro may decline to $1.33 today, he said.

Jobs Market

Gains in the dollar may be limited by speculation the U.S. job market has deteriorated further. Companies in the U.S. eliminated 493,000 jobs in December after cutting payrolls by 472,000 the previous month, ADP Employer Services may say today, according to a Bloomberg News survey. The data are due at 8:15 a.m. New York time.

U.S. nonfarm payrolls fell 500,000 in December, bringing last year’s decline to 2.4 million, the most since 1945, according to a separate survey before Labor Department figures due Jan. 9. The unemployment rate likely jumped to 7 percent, the highest level since 1993.

“We may see the dollar decline on worse-than-expected employment data,” said Kimihiko Tomita, head of foreign exchange in Tokyo at State Street Bank & Trust Co., a unit of the world’s largest money manager for institutions. “There’s a risk that people are expecting too much from the U.S. economy.”

Minutes of the Federal Reserve’s meeting in December showed policy makers saw “substantial” risks to the slumping economy. The Fed reduced the target rate for overnight loans between banks to a range of zero to 0.25 percent and pledged to expand emergency loans if necessary.

Difficult Outlook

The pound slipped versus the dollar after Chancellor of the Exchequer Alistair Darling said the outlook for the U.K. economy is difficult, according to an interview with the Financial Times. The Bank of England will lower its benchmark rate by half a percentage point to 1.5 percent when it announces a policy decision tomorrow, according to a Bloomberg survey.

“In the current climate, no responsible finance minister could say that’s the job done, far from it,” he said, according to the FT.

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