Dollar Index Falls for Longest Run Since March on China Growth

By Yoshiaki Nohara and Ron Harui

Sept. 11 (Bloomberg) -- The Dollar Index fell for a sixth day, its longest losing streak since March, after reports showed China’s factory output and lending gained by more than economists estimated, spurring demand for emerging-market assets.

The euro rose to a nine-month high against the dollar on signs Europe’s recession is abating. The pound climbed to the strongest in a month versus the dollar before a U.K. report forecast to show producer prices gained a second month. The yen strengthened for a second day against the euro amid speculation Japanese exporters are repatriating earnings.

“Solid data in China show economic fundamentals are improving, weighing down on the dollar,” said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG. “Risk appetite is coming back.”

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, retreated to 76.675 as of 9:14 a.m. in London, from 76.817 yesterday in New York. The gauge earlier touched 76.511, the weakest level since Sept. 25, 2008.

The euro rose to $1.4589, from $1.4582. It earlier gained to $1.4627, the highest level since Dec. 18. The yen appreciated to 132.79 per euro, from 133.76. Japan’s currency was at 91.02 per dollar, from 91.73. It touched 90.68, the strongest since Feb. 13.

The pound appreciated to $1.6668, from $1.6651. It earlier touched $1.6742, the highest level since Aug. 7.

China Production, Lending

China’s industrial production expanded 12.3 percent in August from a year earlier, the statistics bureau reported today in Beijing. Economists surveyed by Bloomberg News forecast an 11.8 increase. New lending unexpectedly climbed in August and money supply rose by a record. Banks extended 410.4 billion yuan ($60.1 billion) of local-currency loans, up from 355.9 billion yuan in July, the People’s Bank of China said today.

German exports, adjusted for working days and seasonal changes, rose 2.3 percent in July from June, the Federal Statistics Office said in Wiesbaden on Sept. 8.

“The euro-zone economy is gradually recovering,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The euro will probably trade in a firm manner.”

‘Uptrend’

The euro is likely to climb toward $1.4719, a level that represents a 100 percent Fibonacci retracement from the six- month low of $1.2457 reached on March 4, said Masashi Hashimoto, a Tokyo-based senior analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. Daily momentum indicators such as the moving average convergence/divergence chart show buy signals for the euro against the dollar, he said.

“The euro is in an uptrend,” Hashimoto said yesterday. “The euro used to drop quickly following moderate gains in June and August, but its recent rally bucks that trend.”

The 16-nation currency may rise toward a resistance level of $1.4866 should the currency climb above $1.4719, Hashimoto said. Resistance is where sell orders may be clustered.

The pound was poised for a second weekly advance versus the dollar as the price of goods at U.K. factory gates climbed 0.3 percent in August, the same pace as in July, according to a Bloomberg News survey of economists. The Office for National Statistics will release the data today in London.

Rising Pound

“Sentiment is emerging that the recession in economies around the world, including the U.K.’s, is ending,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Risk-taking appetite is benefiting the pound.”

The Bank of England yesterday held interest rates at 0.5 percent and kept its bond-buying program unchanged in a sign policy makers believe the economy is recovering. The decision by the BOE’s nine-member Monetary Policy Committee, led by Governor Mervyn King, was forecast by all 35 economists in another survey.

The yen advanced against all 16 major counterparts amid speculation Japanese companies are bringing back money earned abroad to take advantage of a tax break that went into effect this fiscal year.

“Japan’s exporters are bringing home their earnings, a typical move in September toward the end of the third quarter,” said Takashi Kudo, director of foreign-exchange sales at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “As a result, the yen is rising across the board.”

The Japanese government announced earlier this year that it would waive taxes on repatriated profits from April 1 to help support the economy. Under previous laws, companies had to pay a combined 40 percent tax on overseas earnings.

The dollar headed for a fifth weekly loss against the yen. If the dollar falls below the key psychological level of 90 yen, the greenback will be caught in a “downward spiral,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. Declines in the dollar will cause a sell-off in shares of export-dependent companies in Japan, he said.

“As stocks decline, investors will buy Treasuries as a refuge,” Nihei said. “The resultant drop in yields will put more downward pressure on the dollar.”

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