BLBG: Dollar Declines Against Pound, Kiwi on Rate-Increase Prospects
By Lukanyo Mnyanda
Oct. 21 (Bloomberg) -- The dollar fell as central bankers began preparing the ground for higher interest rates as economies recover from the recession, sapping demand for the U.S. currency as a refuge.
The dollar dropped the most against Britain’s pound after Bank of England Governor Mervyn King said in an opinion piece in Scotland’s Herald newspaper “it would be wise to take account” the prospect of higher interest rates. New Zealand Reserve Bank of New Zealand Governor Alan Bollard said currency strength won’t be an obstacle to raising borrowing costs. The Dollar Index slid to near the lowest level in 14 months.
“Bollard’s comments have led to more intense speculation about when RBNZ will start hiking rates, and have opened the way for more currency gains,” said Sonja Marten, a currency strategist in Frankfurt at DZ Bank AG, Germany’s biggest cooperative lender.
The dollar weakened to $1.6573 per pound as of 7:25 a.m. in New York, from $1.6382 yesterday. It depreciated to 75.26 U.S. cents against the kiwi, from 74.96 cents yesterday. The U.S. currency was at 90.88 yen, from 90.78 yen. The euro traded at $1.4932, from $1.4945.
Interest rates will have to rise “at some point,” King wrote in the Herald today. The Bank of England’s Monetary Policy Committee voted 9-0 to keep the key rate and its asset-purchase program unchanged at its Oct. 8 meeting, minutes released today showed.
Dollar Index
The New Zealand dollar reversed earlier losses after Radio New Zealand reported that Bollard told lawmakers the currency’s gains are being driven by a weak U.S. dollar and money markets. As recently as Sept. 10, he said he didn’t expect to raise interest rates until “the latter part of 2010.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against the yen, euro, Swiss franc, pound, Swedish krona and Canadian dollar, fell 0.1 percent to 75.467, after earlier sliding to 75.322. It dropped to 75.103 yesterday, the lowest level since July 2008.
The Australian and New Zealand dollars have gained 3.8 percent and 2.7 percent respectively since Oct. 6, when the Reserve Bank of Australia lifted its key interest rated by a quarter-percentage point to become the first Group-of-20 central banks to tighten policy since the financial crisis began. A “very expansionary setting of policy was no longer necessary, and possibly imprudent,” minutes of this month’s RBA policy meeting showed yesterday.
‘Expressing Worry’
The euro retreated from the strongest level in 14 months against the dollar as some investors bet European policy makers will say they are concerned that its strength will harm the economic recovery. French President Nicolas Sarkozy and European Commission President Jose Barroso are delivering speeches today.
“European officials are expressing worry that the euro’s appreciation is making things difficult for their economy,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “This is causing the euro to undergo a downward correction.”
The euro has strengthened 15 percent versus the dollar in the past six months, making the region’s exports more expensive to overseas buyers. European Central Bank President Jean-Claude Trichet said on Oct. 19 that “excessive volatility” in currencies is “bad for economic development.”
The 16-nation currency gained earlier after Cadbury Plc increased its sales forecast and Tele2 AB posted profit that beat analysts’ estimates, adding to signs companies are shaking off the worst effects of the recession.
‘All About Risk’
“It’s part of the bigger risk-appetite picture,” said Stuart Bennett, a senior currency strategist in London at Calyon, the investment-banking unit of Credit Agricole SA. “We’re still in an environment where there’s going to be a gradual recovery. For currency markets, it’s all about risk.”
South Korea’s won slumped on concern the government will counter gains that may hamper exports.
Finance Minister Yoon Jeung Hyun said today he is “concerned” by the decline in retail and manufacturing jobs during the economic recovery. The Bank of Korea said last week it will curb volatility and “excessive herd behavior” in the nation’s currency.
The won dropped 1.1 percent to 1,179.10 per dollar, the biggest decline since Aug. 17. The won has risen 5.9 percent versus the dollar in the past three months, making it Asia’s second-best performer in the period.
