By Yasuhiko Seki and Ron Harui
July 31 (Bloomberg) -- The dollar fell for a second day versus the euro before a U.S. government report forecast to show the contraction in the world’s largest economy slowed, sapping demand for safer assets.
The U.S. currency also headed for a fifth month of losses against the pound, its longest stretch in five years, after a U.K. report showed consumer confidence held at the highest level since April 2008, adding to signs Britain is emerging from recession. The yen was poised for a third weekly decline against Australia’s dollar as global stocks rose, spurring investors to buy higher-yielding assets.
“Sentiment is spreading that the world is coming out of its slump,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Risk appetite is improving, so the bias is for the dollar and the yen to be sold.”
The greenback fell to $1.4135 per euro as of 6:20 a.m. in London from $1.4075 yesterday, and was at 95.33 yen from 95.56 yen. The dollar traded at C$1.0789 from C$1.0834 in New York yesterday. It reached C$1.0750 on July 28, the lowest level since Oct. 3. The U.S. currency was at $1.6547 per pound from $1.6493. It was $1.6586 on July 23, the weakest since June 30.
The yen traded at 134.74 per euro from 134.49 in New York yesterday. Japan’s currency fetched 79.09 against Australia’s dollar from 78.90. A benchmark interest rate of 0.1 percent in Japan compares with 3 percent in Australia, making the South Pacific nation’s assets attractive to investors.
Corporate Earnings
Japan’s currency fell versus 15 of 16 major counterparts this week as better-than-estimated results from companies including Sony Corp. and Motorola Inc. helped drive U.S. and Japanese stock gauges to the highest this year. The Nikkei 225 Stock Average rose as much as 1.9 percent to the highest since Oct. 7. The Standard & Poor’s 500 Index added 1.2 percent in New York to the highest close since Nov. 4.
About three of every four S&P 500 companies that released results since June 17 exceeded analysts’ profit estimates, according to data compiled by Bloomberg.
“Positive economic data, rising stocks and better-than- expected earnings improve risk appetite,” said Takao Yahata, senior manager of foreign exchange and financial-products trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest banking group. “The improved risk appetite means that the safe-haven currencies will weaken.”
Motorola rallied the most since November as job cuts helped the biggest U.S. mobile-phone maker report a smaller loss than analysts projected. Sony, the maker of Vaio computers and PlayStation 3 game consoles, jumped as much as 6.6 percent after cost cuts helped it post a smaller-than-expected loss.
U.K. Consumer Sentiment
U.S. gross domestic product contracted at a 1.5 percent annual rate in the second quarter, following a 5.5 percent drop in the first three months of 2009, according to a Bloomberg News survey of economists. The Commerce Department report is due at 8:30 a.m. in Washington.
The dollar traded near a one-week low against the pound after GfK NOP said in an e-mailed statement today that an index of consumer sentiment in the U.K. was unchanged in July at minus 25. The reading is up from minus 39 a year earlier.
The report adds to signs that the U.K.’s worst slump in a generation is easing after Nationwide Building Society said house prices rose for a third month while mortgage approvals increased. Bank of England policy maker Andrew Sentance said last week the bank may pause its plan to stoke growth by buying bonds if forecasts next month point to an improvement.
Gains in the euro were tempered before reports that economists said will show deflation deepened in the 16-nation area and job losses there increased.
Today’s release of unemployment data may be “potentially serving to keep the euro-dollar subdued,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a research note today.
Unemployment, Prices
Unemployment in the euro region probably increased to 9.7 percent in June from 9.5 percent in May, according to a Bloomberg News survey of economists before the European Union statistics office releases the data today in Luxembourg.
Prices in the euro area probably dropped 0.4 percent in July from a year earlier following a decline of 0.1 percent in June, according to a separate Bloomberg News survey of economists before the data release today.
Overseas Accounts
The Federal Reserve’s custodial holdings of Treasuries for overseas accounts including foreign central banks reached $2 trillion for the first time.
The holdings rose by $5.38 billion, or 0.27 percent, to $2.001 trillion in the week ended July 29, according to data released by the Federal Reserve Bank of New York. Custodial holdings have climbed 18 percent this year, after surging 39 percent in 2008, the data shows.
“The report came as a relief for the dollar for now, but a record debt sale may increase the risk of auction failure in coming months,” said Masahiro Ito, senior manager of foreign exchange sales and marketing at Central Tanshi FX Co., a unit of Japan’s largest money broker Central Tanshi Co.
“If this happens, the market may start to question the sustainability of debt financing in the U.S., thereby keeping a lid on the dollar,” he said.
Treasuries fell, heading for a fourth monthly loss, the longest stretch since 1996, fueled by record U.S. debt sales as President Barack Obama borrows unprecedented amounts to fund his stimulus programs. Treasury issuance will increase to $446 billion this quarter, up 30 percent from the prior three months, according to a survey by the Securities Industry and Financial Markets Association.
The yield on the 10-year note rose two basis points to 3.63 percent in Tokyo, according to BGCantor Market Data.
To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
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