BLBG : Dollar Near Weakest This Year on Record-Low Borrowing Costs
Sept. 15 (Bloomberg) -- The dollar traded near the weakest level this year against the euro as record-low borrowing costs encouraged investors to sell the greenback and buy higher- yielding assets outside the world’s largest economy.
The euro was near a nine-month high against the dollar before a German report economists said will show investor confidence rose to the highest in more than three years. The U.S. currency slid to the lowest in more than a year against the Swiss franc after Federal Reserve Bank of San Francisco President Janet Yellen said policy makers must guard against inflation becoming too low rather than too high.
“The bulk of the liquidity created in the dollar is now shifting into non-U.S. assets amid signs of an easing of the recession,” said Akira Takeuchi, a Tokyo-based currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh- largest banking group. “Without some signal that the U.S. is ready to pull back on monetary easing, the dollar will continue to weaken.”
The dollar traded at $1.4616 per euro as of 6:04 a.m. in London from $1.4618 yesterday in New York when it fell to $1.4653, the weakest level since Dec. 18. The yen was at 91.07 per dollar from 90.94 yesterday when it rose to 90.21, the strongest level since Feb. 12. It traded at 133.12 per euro from 132.94.
The U.S. currency was at 1.0351 francs from 1.0345 francs yesterday after declining to 1.0323 francs, the lowest since July 2008.
Record Low
The cost of three-month loans in dollars between banks dropped yesterday to a record low of 0.295 percent, according to the British Bankers’ Association. The London interbank offered rate, or Libor, slid below that of the Swiss franc on Sept. 8 for the first time since November.
The Dollar Index traded near the lowest level in almost a year after Yellen said there’s a “fear,” which is “real, growing and disruptive,” that the Fed will be unable to withdraw its $1 trillion expansion of credit.
“We face an economy with substantial slack, prospects for only moderate growth, and low and declining inflation,” Yellen said yesterday in a speech in San Francisco. Until the time comes to raise interest rates, “we need to defend our price stability goal on the low side and promote full employment,” she said.
Lehman Anniversary
The U.S. target lending rate of zero to 0.25 percent compares with 8.75 percent in Brazil and 1.25 percent in Norway.
Today is the one-year anniversary of the collapse of Lehman Brothers Holdings Inc. that exacerbated the global recession. Writedowns and credit losses at the world’s biggest financial institutions since the start of 2007 have climbed to more than $1.6 trillion, data compiled by Bloomberg show.
The Dollar Index, which ICE uses to track the U.S. currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, rose 17 percent from Sept. 15, 2008, to March 5, 2009, as investors sought the safety of U.S. assets following the collapse of Lehman. When the panic receded, the index fell 14 percent to 76.656 today as investors focused on deficits in the U.S. and interest rates.
The euro climbed to a nine-month high this week after falling to a 2 1/2-year low of $1.2330 in the month after Lehman went bankrupt. The yen is down 1.8 percent from a 13-year high of 87.13 to the dollar in January.
German ZEW
Europe’s single currency may strengthen before the ZEW Center for European Economic Research releases its index of investor and analyst expectations today. The index increased to 60 in September from 56.1 in August, according to a Bloomberg News survey of economists.
A reading of 60 would be the highest since April 2006. Europe’s economy probably returned to growth in the current quarter after governments spent billions of euros to pull the region out of recession, the European Union said yesterday.
“The outlook for the euro-zone economy is improving,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd. “A good ZEW report would likely send the euro to a new high.”
The European Central Bank on Sept. 3 kept its key rate at 1 percent to boost spending. The Frankfurt-based central bank is providing lenders with unlimited cash for 12 months and is buying covered bonds to counter the slump.
Adding to signs the global recession is easing, U.S. retail sales likely advanced 1.9 percent in August, after declining 0.1 percent in the previous month, according to a separate Bloomberg survey of economists.
U.K. Housing Market
The pound gained for the first time in three days against the yen after a U.K. report today showed more surveyors reported a gain in British home values than a drop for the first time in two years.
The number of U.K. respondents saying prices rose in August exceeded those reporting declines by 11 percentage points, the first positive reading since July 2007, the London-based Royal Institution of Chartered Surveyors said.
“The RICS data indicates the U.K. housing market may have stabilized, suggesting the economy is on the mend,” said Takashi Kudo, director of foreign-exchange sales at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. in Tokyo. “This is likely to be positive for risk appetite, thereby leading to selling of the yen and buying of the pound.”
The Bank of England last week said it won’t expand its 175 billion pound ($291 billion) asset-purchase program and kept its benchmark interest rate at 0.5 percent.
The pound rose to 151.33 yen from 150.81 yen, and the U.K. currency climbed to $1.6616 from $1.6583 in New York yesterday.
