BLBG : Dollar Near Year Low Versus Euro as Recession Eases; Yen Falls
Sept. 17 (Bloomberg) -- The dollar traded near a one-year low against the euro before reports that may show Europe’s trade surplus is growing and the U.S. housing market is improving. The yen weakened after data showed Japanese purchases of foreign bonds reached a four-year high.
The Dollar Index was near the weakest in 12 months as the economic reports boosted demand for higher-yielding currencies and Asian stocks extended a global rally. The yen retreated from a seven-month high against the greenback as dollar-borrowing costs at a record low helped Japanese investors buy more overseas assets.
“Risk appetite is on the mend as the outlook for the global economy brightens,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “The dollar, now the most-favored funding currency because of its ample liquidity, will weaken.”
The dollar traded at $1.4727 per euro at 1:07 p.m. in Tokyo from $1.4709 yesterday in New York where it reached $1.4737, the weakest level since Sept. 25, 2008. The yen was at 91.03 per dollar from 90.93 yesterday, when it hit 90.13, the strongest level since Feb. 12. Japan’s currency declined to 134.07 per euro from 133.78.
Australia’s currency rose to 87.40 U.S. cents from 87.35 cents yesterday, after earlier touching 87.57 cents, the most since Aug. 22, 2008. New Zealand’s dollar was at 71.33 U.S. cents from 71.41 cents in New York, where it reached 71.53, also the strongest since Aug. 22, 2008.
Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Rising Stocks
The Nikkei 225 Stock Average rose 0.7 percent and the MSCI Asia Pacific Index of regional shares gained 0.8 percent.
The euro rose to a four-month high against the pound before a report forecast to show Europe’s trade surplus widened to the most in more than a year, adding to evidence the region’s recession is abating.
The 16-nation euro area’s trade surplus widened to 1.2 billion euros ($1.8 billion) in July, the most since February 2008, from 1 billion euros in June, a Bloomberg survey of economists showed. The European Union’s statistics office will release the report in Luxembourg today. The Dutch central bank said yesterday a “slight improvement” is visible in the global economy.
‘Sound Footing’
“Europe is fundamentally on a sound footing,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s largest interdealer broker. Among the Group- of-Three currencies from the U.S., Germany and Japan, “the euro is my favorite,” he said.
Traders increased bets the European Central Bank will raise its 1 percent benchmark interest rate by the middle of next year. The implied yield on the three-month Euribor futures contract for June 2010 delivery rose to 1.255 percent today from 1.225 percent yesterday.
The euro rose to 89.31 pence from 89.24 pence in New York yesterday, after earlier reaching 89.35 pence, the highest level since May 15.
Adding to signs that the recession is abating, U.S. builders broke ground on 598,000 new homes last month at an annual rate from 581,000 in the previous month, according to a separate Bloomberg News survey before the Commerce Department releases the data today.
Global Confidence
The Philadelphia Federal Reserve Bank will report today that its index of the region’s manufacturing activity advanced this month to the highest level since 2007, according to the median forecast of 55 economists in a Bloomberg News survey. The index is expected to increase to 8 from 4.2 in August, with a positive reading signaling expansion.
The Bloomberg Professional Global Confidence Index rose to 58.54 this month from 58.12 in August. The index exceeded 50 for a second month, which means optimists outnumbered pessimists. Measures of confidence in France and Germany surged after their economies unexpectedly returned to growth last quarter.
The Dollar Index, which tracks the U.S. currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, hit 76.151 yesterday, the lowest level since Sept. 23, 2008. The gauge has retreated 15 percent from its 2009 high of 89.624 reached in March. It was little changed at 76.220 today.
Funding Costs
The London interbank offered rate, or Libor, for three- month dollar loans fell to a record low of 0.292 percent yesterday. It was as high as 4.82 percent in October 2008, following the collapse of Lehman Brothers Holdings Inc. the month before.
“Given the fragility of the U.S. economy, the Fed can’t normalize credit and monetary easing policies,” said Mitsuru Saito, chief economist in Tokyo at Tokai Tokyo Securities Co. “The bulk of highly liquid dollar assets will continue to flow into other currencies or commodities, putting downward pressure on the dollar.”
The yen fell for a fourth day versus the euro as Japanese investors bought a net 1.66 trillion yen ($18.2 billion) in overseas bonds and notes in the week ended Sept. 12, the most since June 2005, the Ministry of Finance said today.
“Risk-taking sentiment is improving amid signs of a global recovery,” said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Corp. in Tokyo. “Local investors are probably sending their money overseas into countries such as Brazil, Australia and New Zealand.”
