BLBG: Dollar Falls as Signs of Global Recovery Boost Demand for Risk
By Matthew Brown and Ye Xie
Sept. 30 (Bloomberg) -- The dollar fell and was headed for a second straight quarterly loss against the euro as evidence the global economy is recovering boosted demand for higher- yielding assets funded in the U.S. currency.
The greenback was poised for a quarterly drop against 14 of its 16 most-traded counterparts as the International Monetary Fund cut its projection for losses and writedowns from the global financial crisis. The euro rose against the dollar after the European Central Bank said it will lend banks less than forecast following a 12-month auction. The yen gained after Japanese Finance Minister Hirohisa Fujii said the government won’t bring up the issue of its strength at the Group of Seven meeting.
There are signs that “the banking sector is on the mend, which is a positive for risk appetite, and that’s reflected in the foreign-exchange markets,” said Henrik Gullberg, a strategist in London at Deutsche Bank AG, the world’s largest currency trader.
The dollar dropped to 89.73 yen at 8:35 a.m. in New York, from 90.09 yen in yesterday. It fell as low as 88.24 yen on Sept. 28, the weakest level since Jan. 23. The dollar declined 7 percent against the yen this quarter. The euro advanced 0.2 percent to $1.4622, from $1.4587, taking its quarterly gain to 4.4 percent. The yen appreciated 0.2 percent to 131.19 per euro, from 131.40, for a 3.1 percent quarterly advance.
Gross domestic product contracted at a 0.7 percent annual rate from April to June, the Commerce Department reported. The median forecast of 78 economists in a Bloomberg News survey was for a drop of 1.2 percent. Consumer spending, which accounts for about 70 percent of the economy, fell at a 0.9 percent pace.
ECB Auction
The ECB said it will lend banks 75.2 billion euros for 12 months at the current benchmark interest rate of 1 percent to boost credit flows and aid the recovery in the region’s economy. Economists expected demand at today’s auction to be 137.5 billion euros, according to the median of 16 forecasts in a Bloomberg News survey. The Frankfurt-based ECB bank said 589 banks participated.
The IMF cut its projection for global writedowns on loans and investments by 15 percent to $3.4 trillion, citing improvements in credit markets and signs of economic growth.
The dollar also fell on speculation a Federal Reserve Vice Chairman Donald Kohn will reiterate today that record-low interest rates will be unchanged for an extended period.
“Fed policy makers will probably keep low borrowing costs unchanged until next summer, weighing on the dollar,” said Akira Hoshino, chief manager of the foreign-exchange trading department in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest lender.
Kohn on Rates
Kohn is set to speak on a panel in Washington about the central bank’s exit policies. Earlier this month, he said a swift increase in U.S. interest rates is unlikely.
Futures contracts on the Chicago Board of Trade show 23 percent odds the Fed will keep the target rate for overnight loans between banks unchanged through April. The probability was 18 percent a month ago.
The yen strengthened as Japan’s Fujii told a news conference in Tokyo that he will explain to the G-7 that the government that took power this month will seek to boost domestic demand.
Japan’s currency also gained as people with direct knowledge of the discussions said the Bank of Japan may decide as soon as next month to let its emergency corporate-debt buying programs expire as businesses regain access to private funding.
Stronger Pound
The pound rose after a report showed U.K. consumer confidence jumped the most since 1995 this month. The British currency strengthened for the third day against the euro, its longest run of gains since Sept. 4, after the market researcher GfK NOP said its index of sentiment rose 9 points to minus 16, the highest level since January 2008. The median of 15 forecasts in a Bloomberg survey predicted a reading of minus 24.
“We saw sterling starting to recover and data from the U.K. is helping this move,” said Ian Stannard, a currency strategist at BNP Paribas SA in London. “The reasons for sterling’s weakness are still very much in place and rebounds might be limited.”
The pound added 0.9 percent to $1.6106, and 0.3 percent to 91.08 pence per euro.
The Australian dollar rose against all of its 16 major counterparts as a report from the Bureau of Statistics showed retail sales climbed 0.9 percent in August after dropping 0.9 percent in July. The median forecast of economists surveyed by Bloomberg News was for a 0.5 percent gain.
“The market’s focus was on the retail sales number which had a very strong result,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney.
The Aussie climbed 1.4 percent to 88.27 U.S. cents. It earlier touched 88.19, the highest since August 2008. Australia’s currency gained 9.5 percent against its U.S. counterpart this quarter.
