BLBG: Dollar Advances Most Since June as Policy Makers Voice Support
By Oliver Biggadike and Ye Xie
Oct. 3 (Bloomberg) -- The dollar strengthened the most against the euro in four months as public officials from Gothenburg, Sweden to Tokyo said a strong U.S. currency is essential to the global economy.
The greenback advanced this week to the highest level versus the euro in almost a month as finance chiefs converging on Istanbul for Group of Seven talks today pushed for a “strong dollar.” Treasury Secretary Timothy Geithner pledged support for such a policy, and European Central Bank President Jean- Claude Trichet said it was “extremely important.”
“All of a sudden, Geithner and Trichet are all talking about the strong-dollar policy,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “The threshold for pain on the euro is a lot lower than it used to be.”
The dollar appreciated 0.8 percent to $1.4576 per euro in New York yesterday, from $1.4689 on Sept. 25, in the biggest weekly gain since a 1.4 percent advance in the seven days ended June 5. The U.S. currency was little changed at 89.81 yen, compared with 89.64. The euro dropped 0.6 percent to 130.90 yen, from 131.70 at the end of last week.
The greenback pared its weekly gain against the euro yesterday after the U.S. payrolls report showed employers eliminated more jobs last month than economists forecast, reinforcing speculation that the Federal Reserve will hold borrowing costs near zero next year.
U.S. Payrolls
Employers eliminated 263,000 jobs in September after a revised reduction of 201,000 in the previous month, the Labor Department reported yesterday. The median forecast of 84 economists surveyed by Bloomberg News was for a decrease of 175,000. The unemployment rate rose to 9.8 percent.
South Africa’s rand was the biggest loser against the dollar this week among the 16 most-active currencies tracked by Bloomberg, declining 2.7 percent to 7.6195.
The rand fell by the most in eight weeks after discussions over a proposed $23 billion merger ended between MTN Group Ltd., Africa’s biggest mobile-phone operator, and Bharti Airtel Ltd., India’s largest carrier.
South African authorities “didn’t like” the deal, Reserve Bank Governor Tito Mboweni said after a speech in Port Elizabeth on Oct. 1. He added that policy makers had boosted foreign- currency purchases to curb the rand’s 25 percent appreciation this year.
The euro fell versus the dollar in the first half-hour after the release of the U.S. payrolls report yesterday, later reversing the move as traders bought the currency to close previous bets for a drop, said Sebastien Galy, a strategist at BNP Paribas SA in New York.
‘Short Squeeze’
“It’s a short squeeze,” Galy said. “You overplay it, and when that happens you cut your position.” A short is a bet a currency will decline. Squeezes occur when demand to buy an asset exceeds the amount available at a given price, forcing the price up to attract sellers.
The same pattern of initial euro declines followed by gains occurred after the Sept. 4 payrolls release.
Interest-rate futures contracts on the Chicago Board of Trade showed a 38 percent chance the central bank would increase the fed funds target from the range of zero to 0.25 percent through March, compared with 45 percent odds a day earlier.
“The medium-term implication is clearly dollar-negative,” said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG. “It just confirms that the Fed will be on hold for an extended period of time.”
Bad News
Over the past few months, the dollar tended to appreciate on negative U.S. economic reports as investors sought safety in the world’s main reserve currency.
That pattern may be changing as bad news cements expectations for the Fed to keep its interest rates low while other central banks may start to increase theirs, according to Laurent Desbois, president in Montreal of Fjord Capital Inc., a currency fund manager with $750 million under management.
“We used to have one big macro trade, either risk-on or risk-off,” said Desbois. “Now, relative monetary policy view starts to take hold. Many still believe in the weak dollar trend.”
The dollar’s share of global currency reserves fell in the second quarter to 62.8 percent, from 65 percent in the first three months of the year, an International Monetary Fund report showed this week. The euro’s share rose to 27.5 percent, from 25.9 percent.
Lagarde on Dollar
French Finance Minister Christine Lagarde told reporters yesterday as she met European Union counterparts in Sweden that “everyone needs a strong dollar.” Her comments came four days after similar remarks from Trichet, and Geithner also pledged support this week.
Japanese Finance Minister Hirohisa Fujii said on Sept. 29 that the government may act to stabilize the foreign-exchange market and denied he supported a stronger yen against the dollar. He won’t discuss the yen’s gains at the G-7 meeting, Kyodo News reported yesterday.
South Korea’s won rose the most against the dollar among the major currencies as investors shifted funds to assets in Asia on speculation its economies will rebound more swiftly than in the U.S. or Europe.
The won climbed 1 percent to 1,174.30 per dollar in its sixth week of gains, the longest rally since April. India’s rupee advanced 0.5 percent to 47.76 against the U.S. currency, and the Philippine peso rose by the same amount to 47.10
To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
