BLBG : Dollar Falls as G-7 Leaders Refrain From Criticizing Weakness
The dollar fell against the euro for a second day after Group of Seven finance chiefs refrained from calling for measures to stop the U.S. currency’s decline.
The greenback also weakened against 14 of its 16 major counterparts on speculation Federal Reserve officials this week will reiterate interest rates will be kept at a record low. The yen pared earlier gains against the dollar as Japanese Finance Minister Hirohisa Fujii said the government will intervene if the yen moves in a “biased direction.”
“The G-7 simply maintained the same statement from the last meetings without addressing the dollar weakness,” said Takashi Kudo, director of foreign-exchange sales at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “As jobs data deteriorate, the Fed won’t be able to raise borrowing costs anytime soon. This view will continue to cause the dollar to fall.”
The dollar dropped to $1.4637 per euro as of 12:31 p.m. in Tokyo from $1.4576 in New York on Oct. 2. It touched a one-year low of $1.4844 on Sept. 23. The dollar slipped to $1.5988 per British pound from $1.5946, and slid to 1.0319 Swiss francs from 1.0350 francs.
The yen fell to 131.53 per euro from 130.90 in New York on Oct. 2. It weakened 0.9 percent to 78.41 per Australian dollar and declined 0.5 percent to 64.66 per New Zealand dollar. The Japanese currency was at 89.82 per U.S. dollar from 89.81.
Fed Speakers
The Dollar Index declined before New York Fed President William Dudley speaks in New York today. Kansas City Fed President Thomas Hoenig will speak at an economic forum in Denver tomorrow.
Boston Fed President Eric Rosengren said last week the U.S. central bank and the government should maintain policies that support economic growth until a self-sustaining recovery is assured.
“It is important that monetary and fiscal policy continue to support the economy until private-sector spending has resumed, and until we are confident that the recovery will continue,” Rosengren said on Oct. 2 in Boston.
The Labor Department on Oct. 2 reported employers eliminated 263,000 jobs in September after a revised reduction of 201,000 in the previous month. The median forecast of economists surveyed by Bloomberg News was for a decrease of 175,000. The unemployment rate rose to 9.8 percent.
The benchmark interest rate is as low as zero in the U.S. and 0.1 percent in Japan, compared with 3 percent in Australia and 2.5 percent in New Zealand, attracting investors to the South Pacific nations’ assets.
G-7 Statement
The U.S. currency also fell after G-7 finance chiefs meeting in Istanbul over the weekend stopped short of sounding alarm at the U.S. currency’s 14 percent decline against a basket of currencies since March.
“Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability,” G-7 ministers and central bankers said in a statement after talks on Oct. 3, repeating language they used in April.
A weaker dollar risks hurting economies outside the U.S. by making the exports of companies such as Japan’s Canon Inc. more expensive. The Dollar Index, which tracks the greenback against the currencies of six trading partners including the euro and the yen, lost 0.4 percent to 76.7774.
“Given the huge amount of rhetoric from various officials leading up to the meeting, warning in particular about excessive currency strength against the dollar and the negative impact on economic recovery, the relatively weak statement leaves the door open to further dollar weakness over coming weeks,” Mitul Kotecha, head of global foreign-exchange strategy in Hong Kong at Calyon, wrote in a report dated today.
ECB Meeting
The European Central Bank will keep its main refinancing rate unchanged at 1 percent at the Oct. 8 meeting, according to all 53 economists surveyed by Bloomberg.
“The ECB is likely to leave rates unchanged this week,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. “Given Europe’s rate advantage over that in the U.S., the euro will probably be bolstered.”
Stock and commodity markets may drop in coming months as the gradual pace of the economic recovery disappoints investors, said New York University Professor Nouriel Roubini, who predicted the financial crisis.
“Markets have gone up too much, too soon, too fast,” Roubini said in an interview in Istanbul on Oct. 3. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped.”
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
