BLBG: Dollar Index Drops in Longest Stretch of Losses Since March
By Lukanyo Mnyanda and Ye Xie
Sept. 11 (Bloomberg) -- The Dollar Index fell for a sixth day in its longest losing streak since March as an increase in U.S. consumer sentiment encouraged investors to sell the greenback and buy higher-yielding assets overseas.
Sterling rose to a one-month high versus the dollar as U.K. producer prices increased in August for a sixth month, indicating the Bank of England may succeed in arresting deflation. The yen advanced versus all of its major counterparts on speculation China’s recovery will boost the growth of its Asian neighbors and Japan’s exporters will repatriate earnings.
“The data has been relatively good, and the burden of proof is on the doomsayers,” said Paul Robson, a senior currency strategist in London at Royal Bank of Scotland Group Plc, Britain’s biggest state-owned bank. “With policy makers saying they are going to keep monetary policy low and accommodative for some time, that’s supporting risk, and people are using the dollar as a funding currency.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, retreated 0.2 percent to 76.705 at 10:09 a.m. in New York. The gauge decreased 1.8 percent from Sept. 4 in its biggest weekly drop since May. The gauge earlier today touched 76.457, the lowest level since Sept. 25, 2008.
The Reuters/University of Michigan preliminary index of U.S. consumer sentiment advanced to 70.2 this month from 65.7 in August. The median forecast of 69 economists surveyed by Bloomberg News was for an increase to 67.5.
Outlook on Yields
“The market is certainly extremely dollar-negative,” said Derek Halpenny, European head of currency strategy in London at Bank of Tokyo-Mitsubishi UFJ Ltd., in an interview on Bloomberg Radio. “Personally, I am a little bit skeptical. As the fundamental news in the U.S. continues to improve, I think that will become more of a difficult phenomenon to persist with. We’ll see yields move higher.”
The dollar traded at $1.4575 per euro, compared with $1.4582 yesterday, after earlier sliding to $1.4634, the weakest level since Dec. 18. The U.S. currency fell 1.2 percent to 90.63 yen after touching 90.61, the lowest level since Feb. 13. The yen gained 1.2 percent to 132.17 per euro, from 133.76.
The U.S. currency was headed for its biggest weekly decline since May versus the euro, falling 2.1 percent. It was poised for a 2.3 percent drop versus the yen this week, its fifth weekly decline in the longest losing streak since December. The yen was up 0.2 percent versus the euro this week.
Fed’s Target Rate
Fed funds futures contracts on the Chicago Board of Trade show investors reduced expectations of a U.S. rate increase early next year. There’s a 24 percent chance that the Fed will raise its target for overnight bank lending to 0.5 percent on Jan. 27, 2010, down from 40 percent odds a month ago.
Sterling increased as much as 0.6 percent to $1.6742, the highest level since Aug. 9, as the Office for National Statistics said today in London said the U.K.’s producer prices climbed 0.2 percent last month from July, when it rose at the same pace. The Bank of England refrained yesterday from expanding its asset-purchase program of buying up to 175 billion pounds ($290 billion) bonds.
The yen advanced to a seven-month high versus the dollar on advances in China’s output and on speculation Japanese companies are bringing back money earned abroad to take advantage of a tax break that went into effect this fiscal year.
Repatriated Profits
“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 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.
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.
Europe’s Dow Jones Stoxx 600 Index climbed 0.6 percent and headed for its biggest weekly gain since the five days through July 24. The Standard & Poor’s 500 Index was little changed.
“Optimistic stock markets and good Chinese economic data have allowed euro-dollar to continue trading around $1.46,” strategists led by Ulrich Leuchtmann, head of currency research at Commerzbank AG in Frankfurt, wrote in a client note today. Recovery signs “are being used to sell” the dollar.
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.
