BLBG: Dollar Trades Near One-Year Low Versus Euro on Recovery Signs
Sept. 23 (Bloomberg) -- The dollar traded within half a cent of a one-year low against the euro on speculation the global economic recovery is gathering strength, encouraging investors to buy higher-yielding assets.
The U.S. currency also weakened versus the yen as economists forecast the Federal Reserve will keep its benchmark interest rate between zero and 0.25 percent today and signal it intends to hold down borrowing costs. New Zealand’s dollar climbed to a 13-month high after a government report showed the economy unexpectedly grew for the first time in six quarters. The pound rose after minutes of the Bank of England’s most recent meeting showed Governor Mervyn King switched tack to support a plan to keep asset purchases at their current level.
“The dollar is likely to remain weak in the near term,” said Lee Hardman, a currency strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “What’s driving the dollar lower is the exceptionally loose liquidity conditions and this encourages its use as a funding currency.”
The dollar traded at $1.4793 per euro as of 10:14 a.m. in London from $1.4790 in New York yesterday, after earlier weakening to $1.4842, the lowest level since Sept. 22, 2008. The U.S. currency fell to 90.93 yen, from 91.10. The yen strengthened to 134.54 per euro, from 134.76.
New Zealand’s dollar, the kiwi, rose as high as 73.12 U.S. cents, the strongest level since Aug. 4, 2008, before trading up 1.1 percent at 72.70 cents. Statistics New Zealand said today gross domestic product grew 0.1 percent in the three months to June 30, following a 0.8 percent drop in the first quarter. A Bloomberg News survey of economists forecast a 0.2 percent contraction.
‘Kiwis Direction’
“Early in the session the market was looking for direction and the kiwis gave it,” said Tony Bieber, a foreign-exchange trader at Suncorp-Metway Ltd. in Brisbane. “The kiwis are leading the charge against the U.S. dollar.”
Traders are betting the Reserve Bank of New Zealand will raise its benchmark interest rate by 1.53 percentage points over the next 12 months, compared with a prediction for 1.36 percentage points yesterday, according to a Credit Suisse Group AG index based on overnight swaps.
The Federal Open Market Committee will probably maintain its assessment that “tight” bank credit is impeding growth, said economists including former Fed Governor Lyle Gramley. Lending contracted for five straight weeks through Sept. 9, a drop that in part reflected Fed orders to banks to raise more capital and toughen lending standards, analysts said.
Fed Survey
All 93 economists surveyed by Bloomberg said the Fed won’t change interest rates at its two-day meeting ending today. Chairman Ben S. Bernanke and his colleagues may discuss how to wind down purchases of mortgage-backed securities, analysts said.
“You’ve obviously got some risks with the Fed, but unless they come out and surprise with being hawkish, which I don’t think they will, it’s another reason dollar bears will feel comfortable with their position,” said Phil Burke, chief foreign-exchange dealer at JPMorgan Chase Bank in Sydney.
Futures contracts on the Chicago Board of Trade show a 41 percent chance the Fed will keep rates unchanged through March, up from a 27 percent chance a month ago.
The Dollar Index, which the ICE uses to track the dollar against the currencies of six major U.S. trading partners, dropped to as low as 75.892, the weakest level since Sept. 22, 2008, before being little changed at 76.177.
G-20 Meeting
The yen gained for a second day against the dollar on speculation world leaders attending a Group of 20 meeting this week will signal currencies other than the dollar need to strengthen to help rebalance global economic growth.
Policy makers need to promote a “sustained growth track and facilitate global adjustment, as well as structural reform which will need to be undertaken in both deficit and surplus countries,” Dimitri Soudas, a spokesman for Canadian Prime Minister Stephen Harper, told reporters in Ottawa on Sept. 21. The G-20 meeting starts tomorrow in Pittsburgh.
“The dollar remains under selling pressure as the G-20 summit moves toward reforming the international monetary system,” Philip Wee, a senior currency economist in Singapore at DBS Group Holdings Ltd., wrote in a research note sent to clients today.
BOE Minutes
The pound advanced against the dollar and the euro after minutes of the Bank of England’s Sept. 10 meeting showed King agreed this month to follow through with policy makers’ August decision for 175 billion pounds ($286 billion) of asset purchases, suspending his drive to buy more.
King and David Miles switched sides and joined a unanimous vote for no change in the plan, arguing that a higher amount would be justified but that consensus was better for now. All nine members of the Monetary Policy Committee also opted to keep the interest rate at 0.5 percent, the minutes released by the central bank today in London showed.
“It’s obviously a positive result for sterling,” said Geoffrey Yu, a currency strategist at UBS AG. “King has backed down a bit now and they have a better outlook for the economy, which is better for the pound. It raises a question over whether they will still extend the asset-purchase program.”
The pound traded at $1.6426, from $1.6422, and 90.05 pence per euro, from 90.42 pence.
Asian Gains
Asian currencies gained, paced by the won and the Philippine peso, as signs the global recovery is gaining traction spurred investors to buy more emerging-market assets.
The won climbed beyond the 1,200 level per dollar for the first time in 11 months as speculation the Fed will keep rates low weakened the greenback. Taiwan’s dollar rose to a three- month high after the Asian Development Bank yesterday raised its economic growth forecast for the region.
“If you are looking for different recovery scenarios, you will find a whole buffet of Asian currencies,” said Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore. “If you start looking for the China connection, you will start looking at the Korean won and the Taiwan dollar. If you look toward economies with healthy domestic growth, which we favor, you will run into the Indonesian rupiah and the Indian rupee.”
The won climbed 0.8 percent to 1,194.45 per dollar, after appreciating to 1,193.80, the strongest level since October, according to data compiled by Bloomberg. The peso added 0.2 percent to 47.430 per dollar, a seven straight gain.
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
