BLBG: Dollar Rises From Almost 15-Month Low on Reduced Risk Demand
By Ye Xie and Ruby Madren-Britton
Nov. 10 (Bloomberg) -- The dollar rose from almost a 15- month low against the currencies of major U.S. trading partners as a drop in U.S. stocks discouraged demand for riskier assets.
Sterling slid against the dollar as Fitch Ratings said the U.K.’s credit rating is the most at risk among top-rated nations. The Brazilian real was the biggest loser versus the greenback among the 16 most-traded counterparts tracked by Bloomberg on speculation the nation’s government will try to stem the currency’s appreciation.
“Yesterday, we had quite a large move in terms of dollar weakness,” said Camilla Sutton, currency strategist at Bank of Nova Scotia in Toronto. “Today, we just gave back some of the move. Most currencies are trading close to this year’s highs.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, increased 0.2 percent to 75.179 at 11:40 a.m. in New York, from 75.026 yesterday, when the gauge touched 74.930, the lowest level since August 2008. The index has lost 7.7 percent in 2009.
New Zealand’s dollar dropped 0.4 percent to 74.02 U.S. cents and Norway’s krone weakened 0.3 percent to 5.5998 per dollar on speculation investors will reduce carry trades, in which they sell the currency of a nation with low borrowing costs and buy assets where returns are higher. Benchmark interest rates as low as zero in the U.S. make the dollar a favored target for investors seeking to fund carry trades.
Drop in Pound
Sterling dropped for the first time in six days against the dollar, falling 0.4 percent to $1.6695. It reached $1.6843 yesterday, the highest level since Aug. 6.
The U.K.’s rating faces risks because the nation needs “the largest budget adjustment,” David Riley, head of global sovereign ratings at Fitch, said in an e-mailed statement. “Our stable rating outlook reflected our expectation that the U.K. government will articulate a stronger fiscal consolidation program next year.”
The pound’s sell-off “offers a buying opportunity,” wrote Paul Robinson, a currency strategist in London at Barclays Plc, in a research note to clients today. “Fitch stressed after the statement that there were no plans to change the U.K. rating. Other news has been more positive.”
The Royal Institution of Chartered Surveyors said in its monthly survey that the number of real-estate agents saying prices rose exceeded those reporting declines by the most since December 2006. A British Retail Consortium survey showed stores posted their best October sales growth since 2002.
Weaker Real
Brazil’s real declined 0.6 percent to 1.7088 per dollar on speculation Brazil will try to restrict the currency’s gain to help the nation’s exporters. The currency touched 1.6968, the strongest level since September 2008.
The government announced a 2 percent tax on foreign purchases of stocks and fixed-income securities on Oct. 19. The real has gained 35 percent against the dollar in 2009 in the best performance among major currencies.
“There’s a feeling the government will not allow a strong appreciation of the real,” said Miguel Daoud, a partner at Global Financial Advisors in Sao Paulo. “They have an arsenal of tools that will not change the direction of the currency but will mitigate the climb.”
The dollar gained 0.3 percent to $1.4951 per euro, from $1.4999 yesterday. It touched $1.4626 on Nov. 3, the strongest level in almost a month. The greenback will end the year at $1.50 and decline to $1.60 by the end of 2010 as the Federal Reserve trails other central banks in raising borrowing costs, according to Bank of Nova Scotia’s Sutton. The euro decreased 0.4 percent to 134.38 yen, from 134.91. The dollar traded at 89.87 yen, compared with 89.93.
Citigroup’s View
Citigroup Inc. advised its clients to buy the euro versus the dollar as the “consolidation” is about to be over, wrote analysts led by Tom Fitzpatrick, chief technical analyst in New York, in a research note to clients today.
“We believe the market is ready to trend higher again,” the strategists wrote, adding that a rally through $1.5064 would “open the way” for $1.5285.
European Central Bank council member Yves Mersch told Bloomberg News after a hearing at the Luxembourg Parliament today that policy makers may raise their economic growth forecast in December.
The Dollar Index rallied to a three-year high of 89.624 on March 4 as the financial crisis encouraged investors to take refuge in U.S. Treasuries. Since then, the index decreased about 16 percent as traders changed course and bought higher-yielding assets on evidence of an economic recovery. The gauge of the greenback reached an all-time low of 70.698 in March 2008.
‘The dollar is not at a new extreme by any stretch of the imagination,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, in an interview on Bloomberg Television.
