Dollar Maintains Two-Day Decline on Signs of U.S. Recovery, Stock Gains

By Masaki Kondo and Monami Yui - Jan 19, 2012 9:14 AM GMT+0700

The dollar maintained a two-day decline against the euro amid signs the U.S. economy is gaining momentum and as Asian stocks extended a global rally, damping demand for haven currencies.

South Korea’s won strengthened against all of its major counterparts before data forecast to show fewer Americans filed applications for unemployment benefits. The Australian dollar slid for the first time in three days after government data showed employers unexpectedly reduced payrolls. Demand for the euro was limited ahead of a second day of talks between Greece and bondholders on a debt-swap plan.

“The U.S. recovery is the only reason that can justify the current risk-on markets,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “When stocks are higher, investors tend to sell currencies” such as the dollar.

The dollar was little changed at $1.2853 per euro as of 10:55 a.m. in Tokyo from yesterday in New York, when it slid 1 percent, the most since Nov. 11. The yen fetched 98.64 per euro from 98.83. The U.S. currency dipped 0.1 percent to 76.74 yen. The won strengthened 0.5 percent to 1,136.35 per dollar.

The MSCI Asia Pacific Index (MXAP) of shares advanced 1 percent. The Standard & Poor’s 500 Index climbed 1.1 percent in New York yesterday and closed at the highest level since July.

Jobless claims in the U.S. decreased to 384,000 in the week ended Jan. 14 from 399,000, according to the median of economist estimates in a Bloomberg News survey before the figures are released today. Factory output climbed 0.9 percent last month, the biggest increase since December 2010, Federal Reserve data showed yesterday.

Greek Talks

The Institute of International Finance, which represents private creditors to Greece, broke off negotiations last week after failing to agree with the government about how much money investors will lose by swapping their bonds. Greece could forge an agreement on a voluntary debt swap with creditors by the end of this week, one finance ministry official told reporters in Athens before the talks ended yesterday.

The yen has advanced 8.7 percent in the past six months, the best performance among the 10 currencies tracked by the Bloomberg Correlation-Weighted Indexes. The dollar has risen 6.7 percent, while the euro has fallen 3.7 percent.

France is scheduled to auction bonds today maturing in more than a year for the first time since S&P stripped the nation of its AAA credit rating on Jan. 13. The country will offer debt whose maturities range from 2014 to 2040.

“I’m very bearish about the euro, absolutely,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “The situation in Europe is still very, very poor.”

The Australian dollar weakened against all of its 16 major counterparts after the statistics bureau said the number of people employed dropped by 29,300 in December. Economists had estimated an increase of 10,000.

“The knee-jerk reaction was to take the Aussie dollar lower,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington.

The currency lost 0.3 percent to $1.0406 and fell 0.4 percent to 79.89 yen.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.