BLBG: Dollar Advances as Equities Drop, Short-Term Treasuries Rise
By Ruby Madren-Britton and Matthew Brown
Nov. 20 (Bloomberg) -- The dollar rose against most of its major counterparts as investors bought short-term Treasuries on concern the equity rally is overdone.
The yen advanced against the euro as U.S. stock-index futures dropped, discouraging demand for higher-yielding assets. The greenback headed for its fourth straight weekly loss versus the yen and traded at almost a six-week low on speculation the Federal Reserve will keep interest rates near zero to encourage economic growth.
“The market is reducing its exposure to risk and moving into U.S. Treasuries,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The dollar is benefiting.”
The dollar strengthened 0.7 percent to $1.4820 per euro at 8:37 a.m. in New York, from $1.4925 yesterday. It touched $1.4802, the weakest level since Nov. 4. The yen appreciated 0.7 percent to 131.85 per euro, from 132.79, and was headed for a 1.3 percent rally this week. The U.S. currency was little changed at 88.97 yen, compared with 88.97, after touching 88.64 yesterday, the lowest level since Oct. 9.
Sweden’s krona dropped 1.4 percent to 6.9908 per dollar and the New Zealand dollar fell 1.2 percent to 64.23 yen as the drop in stocks encouraged investors to reduce carry trades, in which investors buy higher-yielding assets with funds borrowed in nations with low interest rates. Benchmark rates of zero to 0.25 percent in the U.S. and 0.1 percent in Japan make their currencies popular for funding carry trades.
Drop in Equities
Futures on the Standard & Poor’s 500 Index expiring next month dropped 0.5 percent. The MSCI World Index of shares fell 0.6 percent and headed for a weekly decline of 1.1 percent. The Nikkei 225 Stock Average slid 0.8 percent, capping its fourth straight weekly loss. The Dow Jones Stoxx 600 Index of European shares declined for a fourth-straight day.
China’s yuan forwards were on course for the biggest weekly drop in 10 months on speculation Chinese officials will rebuff international calls for the currency to appreciate.
U.S. President Barack Obama urged China during his visit there this week to allow the yuan to gain. His Chinese counterpart, Hu Jintao, made no mention of the currency’s peg to the greenback in a joint briefing.
China is “passive” on the value of the dollar, said the central bank’s Governor Zhou Xiaochuan at a forum in Beijing today, signaling policy makers aren’t yet prepared to loosen controls on the yuan.
Outlook for China
“Zhou’s words may indicate China won’t let the yuan float in the short-term,” said Shi Lei, a Beijing-based financial market analyst at Bank of China Ltd. “Policy makers are concerned that more flexibility in monetary policy, including the exchange rate, will cause assets bubbles.”
The yen also strengthened versus major counterparts including the euro after the Bank of Japan left its benchmark interest rate unchanged at the end of its policy meeting today. The bank raised its monthly assessment, saying the economy is picking up.
“The yen won’t materially sell off until we see a rise in U.S. interest rates,” Adam Cole, London-based global head of currency strategy at Royal Bank of Canada, said in a Bloomberg Television interview.
The chance of a June increase in the Fed’s target rate was 28 percent today, compared with 68 percent odds a month ago, according to interest-rate futures.
South Korea’s won weakened versus the dollar for a second day as Kim Jong Chang, governor of the Financial Supervisory Service, said late yesterday without elaborating that government agencies plan to hold talks on what can be done to address inflows financed with low-interest dollar loans.
‘Destabilizing Effects’
“These measures are taken to prevent destabilizing effects of capital inflows, but should not be taken as capital controls,” said Mirza Baig, a currency strategist in Singapore at Deutsche Bank AG.
The South Korean financial regulator announced yesterday tightened rules on lenders’ foreign-currency funding. The measures, including limits on the amount of foreign-currency forward contracts banks sign with companies, aren’t aimed at affecting the “in and out” of overseas capital, Kim said.
The won declined 0.2 percent to 1,159.05 per dollar. It earlier touched 1,168.65, the weakest level since Nov. 9.
To contact the reporters on this story: Ruby Madren-Britton in New York at rmadrenbritt@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net
