BLBG: Euro Declines as Officials May Sound Concern Over Recent Gains
Oct. 19 (Bloomberg) -- The euro fell for a second day against the dollar on speculation policy makers will sound concern about the European currency’s recent strength at a meeting today.
The 16-nation currency retreated from a 14-month high before talks between euro-area finance ministers in Luxembourg and as Asian shares extended declines in U.S. equities, curbing demand for higher-yielding assets. The Australian and New Zealand dollars erased earlier losses as a Reserve Bank of Australia official said a move to a “more normal” interest- rate setting was appropriate as the economic outlook improves.
“There is emerging wariness about policy makers’ remarks on the strength of the euro,” said Tomokazu Matsufuji, a dealer in Tokyo at SBI Liquidity Markets Co., a unit of financier SBI Holdings Inc. “Along with losses in stocks, the dollar’s fall may take a temporary breather.”
The euro dropped to $1.4882 as of 5:33 a.m. in London from $1.4905 per euro in New York on Oct. 16. Europe’s single currency rose to $1.4968 on Oct. 15, the strongest since Aug. 13, 2008. The yen was at 90.86 versus the dollar from 90.89. Japan’s currency traded at 135.21 per euro from 135.48.
Australia’s dollar rose to 91.76 U.S. cents from 91.65 cents in New York on Oct. 16, when it touched 92.70 cents, the most since August 2008. New Zealand’s dollar advanced to 74.47 U.S. cents from 74.08 cents last week. It reached 74.96 cents last week, the most since July 2008.
Luxembourg meeting
The dollar rose against 10 of its 16 most-traded counterparts as Asian stocks continued a slide in equities. The Standard & Poor’s 500 Index dropped 0.8 percent on Oct. 16 after Bank of America Corp., the biggest U.S. lender, posted a larger- than-forecast third-quarter loss and U.S. consumer confidence fell more than economists had estimated.
The MSCI Asia Pacific Index of regional shares dropped 0.1 percent, and Japan’s Nikkei 225 Stock Average lost 0.3 percent.
The euro weakened after Luxembourg’s Jean-Claude Juncker, who heads the so-called eurogroup and also serves as his nation’s prime minister, said last week the currency’s gains will be discussed at a gathering of finance ministers today.
“We’ll tell you after the meeting if there’s something new to be said, a kind of extension to the normal poem,” Juncker said last week. “But I guess the poem will stay as the poem was,” adding that “we don’t like excessive volatility in exchange rates and disorderly movements.”
Futures traders reduced bets that the euro will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 43,367 on Oct. 13, compared with net longs of 51,045 a week earlier.
Futures are agreements to buy or sell assets at a set price and date. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange.
‘Normal Setting’
The so-called Aussie advanced as Philip Lowe, assistant governor of the RBA, said it was “appropriate” to remove monetary stimulus as the economic outlook improves. RBA Governor Glenn Stevens unexpectedly increased the benchmark rate to 3.25 percent on Oct. 6.
“The Australian economy has turned out to be quite a lot stronger than we thought,” Lowe said at a conference in Sydney today. “It’s entirely appropriate we go back to a more normal setting in monetary policy. And that’s the process that’s under way now.”
Gains in the yen and the dollar may be tempered before reports this week that economists said will show the U.S. housing market improved, damping demand for safer assets.
The National Association of Home Builders/Wells Fargo confidence index rose to 20 in October from 19 in September, a Bloomberg News survey showed before the report is released today. U.S. housing starts rose to an annual rate of 610,000 in September from 598,000 in August, according to a separate Bloomberg survey. The Commerce Department will release the report tomorrow.
Economies Improving
Adding to signs the economy is improving, minutes from a Bank of Japan meeting last month showed board members said the need for emergency credit-easing programs was decreasing as companies were finding it easier to raise funds. The central bank last week raised its evaluation of Japan’s economy for a second month.
“The outlook that economies around the world are recovering is fueling risk-taking sentiment,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “Given that Japanese and U.S. rates are likely to stay very low to support growth, the yen and the dollar will probably be sold as funding currencies.”
Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3.25 percent in Australia, 2.5 percent in New Zealand and 1 percent in the euro zone.
In carry trades, investors borrow in a nation with low borrowing costs and buy assets in countries where returns are higher. The risk in such trades is that currency market moves will erase profits.
Pound Weakens
The pound declined for the first time in five days against the dollar after the Sunday Times said Bank of England policy maker Adam Posen may support an extension of the bank’s 175 billion pounds ($286 billion) asset-purchase program.
“I’m not worried about overshooting inflation right now,” Posen said, according to the newspaper.
“There are renewed concerns that the BOE may expand its asset-purchase program,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. The pound “is falling because of Posen’s comments.”
The Financial Times reported on Oct. 15 that BOE Markets Director Paul Fisher said the central bank’s bond-buying program may be paused next month so it will have the option “of doing more later.” The BOE is scheduled to hold its Monetary Policy Committee meeting on Nov. 5.
Britain’s currency fell to $1.6337 from $1.6356 on Oct. 16 when it touched $1.64, the highest level since Sept. 23.
Exporter Selling
The yen rose on speculation Japanese exporters took advantage of its recent weakness against the dollar and the euro to bring funds back home.
Large Japanese manufacturers expected the yen to average 94.50 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Oct. 1. The forecast in the previous report was for a rate of 94.85.
“There has been constant selling of the dollar from exporters above 91 yen per dollar,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.
Japan’s currency fell to as low as 91.32 per dollar on Oct. 16, the weakest level since Sept. 25, and it declined to 136.07 per euro the same day, the lowest since Aug. 24.
