Dollar Falls as Signs on Global Recovery Boosts Demand for Risk

By Yoshiaki Nohara and Ron Harui

Sept. 30 (Bloomberg) -- The dollar fell, heading for a second quarterly loss against the euro, as signs the global economy is recovering boosted demand for higher-yielding assets funded in the U.S. currency.

The U.S. currency headed for a quarterly decline against 14 of 16 major counterparts before a report this week forecast to show American employers cut fewer jobs and as Japan’s industrial production rose in August for a sixth month. Australia’s dollar climbed to a 13-month high against the greenback as better-than- forecast retail sales bolstered speculation the nation’s central bank will raise rates as early as November.

“Investors are waiting for positive data to justify taking risk,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Improving U.S. jobs figures would boost demand for higher-yielding assets and be negative for the dollar.”

The dollar dropped to 89.65 yen as of 7:08 a.m. in London from 90.09 yen in New York yesterday. It fell to as low as 88.24 yen on Sept. 28, the weakest level since Jan. 23. For the quarter ending today, the dollar has declined 7 percent against the yen.

The euro advanced to $1.4639 from $1.4587. Yesterday, it touched $1.4527, the lowest level since Sept. 14. The euro has risen 4.3 percent against the dollar this quarter.

Japan’s currency fetched 131.28 per euro from 131.40 in New York yesterday. The yen has gained 3 percent against the euro this quarter.

U.S Jobs Data

The U.S. Labor Department is forecast to report payrolls fell by 180,000 workers in September, the smallest drop since August 2008, according to the median estimate of economists in a Bloomberg News survey. The data is due on Oct. 2.

Japan’s factory output gained 1.8 percent in August after advancing 2.1 percent in July, the Trade Ministry reported today in Tokyo. That matched the median estimate of economists in a separate survey.

The dollar also fell on speculation a Federal Reserve official will reiterate today that record-low interest rates will be unchanged for an extended period.

“Fed policy makers will probably keep low borrowing costs unchanged until next summer, weighing on the dollar,” said Akira Hoshino, chief manager of the foreign-exchange trading department in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest lender.

Fed Vice Chairman Donald Kohn is set to speak on a panel in Washington about the central bank’s exit policies. Kohn earlier this month said a swift increase in U.S. interest rates is unlikely.

Fed’s Kohn

“With the global economy quite weak and inflation low, a large and rapid rise seems quite improbable,” Kohn said at the Brookings Institution in Washington on Sept. 10.

Futures contracts on the Chicago Board of Trade show a 23 percent chance the Fed will keep rates unchanged through April, up from 18 percent odds a month ago.

The Bank of Japan may decide as soon as next month to let its emergency corporate-debt buying programs expire as businesses regain access to private funding, people with direct knowledge of the discussions said.

The decision would echo steps by central banks to pare back unprecedented measures to unfreeze credit as the financial industry stabilizes. At the same time, because Japan’s economic recovery is threatened by rising unemployment and deflation, policy makers are likely to keep the benchmark interest rate target near zero into next year, analysts said.

Australia’s Dollar

The Australian currency rose against all of its 16 major counterparts as retail sales climbed 0.9 percent in August after dropping 0.9 percent in July, the Bureau of Statistics said today. The median forecast of economists surveyed by Bloomberg News was for a 0.5 percent gain.

“The market’s focus was on the retail sales number which had a very strong result,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney.

The Australian dollar rose 1.2 percent to 88.06 U.S. cents. It earlier touched 88.19, the highest since August 2008. Australia’s currency gained 9.1 percent against its U.S. counterpart this quarter.

The euro snapped two days of losses against the dollar on speculation European Central Bank officials will reiterate it is too early to withdraw economic stimulus measures.

ECB President Jean-Claude Trichet wrote in a newsletter yesterday that “at some point in time, exit strategies will have to be implemented,” suggesting the central bank is in no hurry to scale back its unconventional policies. The ECB yesterday offered banks as much cash as they want over 12 months for a second time in three months to support the economy.

ECB

“As long as officials like Trichet feel that now is not the time to start an exit strategy, the market’s appetite for risk should be underpinned,” said Philip Wee, a senior currency economist at DBS Group Holdings Ltd. in Singapore. “This coupled with ultra-low U.S. interest rates should continue to benefit the euro and to hold the dollar down.”

ECB policy makers including Trichet and Council Board members Christian Noyer and Axel Weber will speak at the Eurofi Financial Forum in Goeteborg, Sweden later today.

The benchmark interest rate is 1 percent in the 16-nation euro region, compared with as low as zero in the U.S. and 0.1 percent in Japan, attracting investors to European assets.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.