By Lukanyo Mnyanda and Yasuhiko Seki
Oct. 26 (Bloomberg) -- The dollar fell to a 14-month low versus the euro as an advance in stocks boosted confidence that the global economy is recovering, sapping demand for the U.S. currency as a refuge from the financial turmoil.
The dollar dropped the most against the Swedish krona as Stockholm-based Electrolux AB, the world’s second-biggest household-appliance maker, almost doubled third-quarter profit on demand in Europe and North America. South Korea’s won rose after the nation’s economy grew at the fastest pace in seven years. The yen and euro gained after China’s Financial News said the nation should boost reserves in the currencies.
“We’re back in the familiar role of the dollar weakening alongside stocks that are picking up,” said Neil Mellor, a currency strategist in London at BNY Mellon Corp., the world’s biggest custodian of financial assets. Currency markets may “be locked and loaded into this sort of frame of mind where the dollar goes lower as stocks edge up,” he said.
The U.S. currency weakened to $1.5031 per euro as of 8:41 a.m. in London from $1.5008 in New York last week. It earlier dropped to $1.5063, the lowest level since August 2008. The dollar also declined to 91.82 yen from 92.06 yen. The yen traded at 137.99 per euro from 138.15.
The MSCI World Index of shares climbed as much as 0.3 percent. Standard & Poor’s 500 Index futures expiring in December added 0.2 percent, indicating the benchmark for U.S. equities may open higher.
Shaking Off Recession
The dollar also declined against 12 of its 16 major counterparts on speculation reports this week will add to evidence that some of the world’s biggest economies are shaking off the worst of the recession.
A gauge of French household sentiment improved to minus 35 in October from minus 36 in September, a Bloomberg survey of economists showed before the Paris-based national statistics office releases the report tomorrow. The Conference Board’s index of U.S. consumer confidence increased to 53.5 this month from 53.1 in September, a separate Bloomberg survey showed before tomorrow’s report.
The Beijing-based Financial News, a newspaper affiliated with China’s central bank, said the nation should raise the amount of yen and euro in its foreign-exchange reserves while keeping the dollar as the main component.
“The Chinese article revived concern over the status of the dollar and triggered knee-jerk selling of the greenback,” said Yuichiro Harada, senior vice president of the foreign- exchange division at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest lender.
Korean Won
China is the biggest international owner of U.S. government debt followed by Japan. The nation’s foreign-exchange reserves, the world’s largest, surged in the third quarter as an economic recovery attracted speculative capital and a weakened dollar boosted valuations of its yen and euro assets. The holdings climbed about $141 billion to a record $2.273 trillion, the central bank said this month.
South Korea’s won climbed after a higher-than-forecast expansion in its economy spurred expectations its central bank will raise borrowing costs. Gross domestic product increased 2.9 percent in the third quarter from three months earlier, the central bank said today in Seoul. That was the fastest since the first quarter of 2002 and compared with a median estimate of 1.9 percent growth in a Bloomberg survey.
The won climbed 0.3 percent against the dollar to 1,177.90.
Higher Rates
The dollar traded at the highest level in more than a month versus the yen earlier on speculation the Federal Reserve will boost interest rates sooner than some economists forecast. The Wall Street Journal said Fed officials are likely to discuss next month how and when to signal the possibility of higher U.S. interest rates.
Members of the U.S. central bank are contemplating the best way to let the market know that a period of record-low rates will draw to an end, the Journal reported Oct. 24, without saying where it got the information. The issue may be “on the table” when the Federal Open Market Committee meets Nov. 3-4.
The Fed will increase the target rate for overnight bank loans to 0.5 percent in the second quarter of 2010, according to economists surveyed by Bloomberg. The Bank of Japan is projected to maintain interest rates at least until the end of the first quarter of 2011.
“Given the likelihood that the BOJ will lag behind other central banks in exit policies, there is a chance that the yen may replace the dollar as the most-favored funding currency for risk trade,” said Osao Iizuka, head of foreign-exchange trading at Sumitomo Trust & Banking Co. “This will put potential downward pressure on the yen going forward.”
BOJ Report
Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., making the yen and dollar favored targets for investors seeking to fund so-called carry trades. The risk in such transactions is that currency-market moves will erase profits.
The Bank of Japan will probably forecast this week that deflation will extend into fiscal 2011, an indication that borrowing costs are likely to stay near zero.
Consumer prices excluding fresh food, the bank’s preferred gauge of inflation, will tumble 0.5 percent in the year starting April 1, 2011, and economic growth will accelerate to 1.2 percent, according to the median estimate of 15 economists surveyed by Bloomberg. The central bank will release its semiannual outlook on Oct. 30.
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
Posts
No comments:
Post a Comment