Dollar Falls as Lower Volatility, Libor Erode Safety Demand

By Ye Xie

May 20 (Bloomberg) -- The dollar declined beyond $1.37 per euro for the first time in a week as falling volatility of currencies and stocks spurred speculation investors will seek higher-yielding assets.

New Zealand’s and Canada’s dollars gained versus the greenback as crude oil prices rose above $60 a barrel and copper advanced, encouraging demand for currencies of commodity producers. The pound traded near the highest level this year as U.S. stock-index futures gained and the cost of borrowing in dollars between banks dropped.

“The currency market is very much influenced by the temperature of risk,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “Overall sentiment is building on itself, contributing to dollar selling.”

The euro advanced 0.4 percent to $1.3685 at 8:22 a.m. in New York, from $1.3630 yesterday. It earlier touched $1.3707, the highest level since May 13. Japan’s currency appreciated 0.3 percent to 95.71 per dollar from 95.97. The common European currency increased 0.1 percent to 130.99 yen from 130.81.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, and Europe’s VStoxx Index have both retreated to their lowest levels since Sept. 12, the last trading day before Lehman Brothers Holdings Inc. filed the biggest bankruptcy in U.S. history.

The London interbank offered rate, or Libor, for three- month dollar loans decreased 0.04 percentage point to 0.72 percent, bringing its drop over the past four days to almost 0.14 percentage point, according to the British Bankers’ Association. The rate was 1.43 percent at the end of 2008.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net