Dollar, Yen Weaken as Signs of U.S. Growth Damp Safety Bid; Aussie Gains

By Anchalee Worrachate and Monami Yui - Dec 16, 2011 7:19 PM GMT+0700

The dollar and yen weakened against most of their major counterparts as evidence the U.S. economy is gaining momentum reduced demand for safer assets.

The Australian and New Zealand dollars led gains versus the greenback as rising commodity prices boosted investor appetite for the South Pacific nations’ assets. The euro pared its biggest weekly decline against the dollar in three months as Italy’s Prime Minister Mario Monti survived a vote on his budget plan. India’s rupee surged from a record low after the central bank took steps to curb speculation.

“Sentiment overall remains fragile, but at least recent reports in the U.S. suggest there’s some degree of economic healing going on,” said Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ Ltd. in Tokyo. “That helps to stabilize risk sentiment in the near term, and it’s negative for haven currencies.”

The dollar declined 0.2 percent to $1.3035 versus the euro at 7:12 a.m. New York time, trimming this week’s advance to 2.7 percent, still the most since the period ended Sept. 9. The yen depreciated 0.2 percent to 101.50 per euro after rising yesterday to 101.05, the strongest level since Oct. 4. The dollar was little changed at 77.88 yen.

The Stoxx Europe 600 Index gained 0.2 percent, and futures on the Standard & Poor’s 500 Index (SXXP) rose 0.4 percent.

The Australian dollar advanced 0.8 percent to $1.0002, and the New Zealand currency, also known as the kiwi, climbed 0.9 percent to 76.05 U.S. cents.

‘Factored In’

“The market has already factored in a fairly negative outcome from Europe and there’s some scope for sentiment to improve,” said Greg Gibbs, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. The Australian currency is likely to “firm up,” he said.

The Indian rupee extended its rally from an all-time low reached yesterday after the Reserve Bank of India announced measures to curb speculation in the foreign-exchange market. The currency appreciated 1.7 percent to 52.74 per dollar after touching the all-time low of 54.3050 yesterday.

“The RBI has taken decisive measures to reduce onshore speculation against the rupee,” said Olivier Desbarres, head of regional foreign-exchange strategy at Barclays Plc in Singapore. “These measures have certainly caught the market’s attention, and it reduces the chances of a rapid weakening.”

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was little changed at 80.154 after touching 80.730, the highest level since January.

Consumer Prices

U.S. consumer prices rose 0.1 percent last month after falling 0.1 percent in October, according to the median forecast of 82 economists in a Bloomberg News survey before today’s report from the Labor Department.

Gross domestic product will expand 2.19 percent in 2012 after growing 1.80 percent this year, according to forecasts compiled by Bloomberg News.

U.S. initial jobless claims fell by 19,000 to 366,000 last week, the least since May 2008, the Labor Department said yesterday. Other reports showed manufacturing in the regions covered by the Federal Reserve Banks of New York and Philadelphia accelerated in December more than forecast.

The Fed’s policy-setting panel said on Dec. 13 the economy “has been expanding moderately,” compared with the Nov. 2 assessment that growth “strengthened somewhat.”

The dollar has appreciated 1.8 percent in the past month in the best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has fallen 1.8 percent, and the yen has advanced 0.6 percent.

Euro Versus Dollar

Bets that the euro will drop against the dollar fell from last week in the options market. Traders paid 3.3 percentage points more for the right to sell the euro against the dollar than to buy it, down from 3.6 percent on Dec. 9.

“The U.S. economy has certainly been pretty stable for several months,” Gibbs said. Recent demand for the U.S. dollar may have been “excessive,” he said.

The euro was headed for a weekly decline against most of its major counterparts after European Central Bank President Mario Draghi said there’s no “external savior” for indebted countries that don’t implement structural reforms.

The ECB is purchasing the bonds of debt-strapped nations such as Italy and Spain after they agreed to implement austerity measures to improve their finances. Draghi nevertheless reiterated in a speech in Berlin this week that the ECB’s bond program is “neither eternal nor infinite.”

Further gains in the euro will be limited, according to Morgan Stanley.

“We expect the downtrend to resume shortly as concerns linger, particularly surrounding the implementation risk for the EU Summit agreement,” Hans-Guenter Redeker, a strategist in London, wrote in a note to clients. “We do not expect bank repatriation to provide much support for the euro against the dollar going into the year-end as we believe that much of this flow may well have been already taken place.”

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net