BLBG: Euro Snaps 4-Day Drop as Recovery Boosts Higher-Yield Demand
By Paul Dobson and Ron Harui
Feb. 1 (Bloomberg) -- The euro snapped four days of declines against the dollar as U.S. stock futures advanced and investors bet the global economic recovery is gaining momentum.
The euro also strengthened versus the yen before U.S. Institute for Supply Management data that may show manufacturing grew in January for a sixth straight month. The South African rand and Norwegian krone led gains for higher-yielding currencies. South Korea’s won dropped against all but one of its 16 most-traded peers tracked by Bloomberg as Asian stocks fell.
“The market is waiting for the ISM to confirm the U.S. recovery is on track, and we don’t think that’s dollar positive,” said Marcus Hettinger, a currency strategist at Credit Suisse Group AG in Zurich. “The dollar has an interest- rate disadvantage, mainly versus the euro.”
The euro was at $1.3905 as of 10:17 a.m. in London, from $1.3863 in New York on Jan. 29. It traded at 125.56 yen from 125.13. The dollar was at 90.31 yen from 90.27 yen.
The ISM factory index was 55.5 in January, according to the median estimate of 62 economists in a Bloomberg News survey. Readings greater than 50 signal expansion. U.S. household purchases rose 0.3 percent after a 0.5 percent gain in November, according to a separate survey. ISM will release the data at 10 a.m. New York time.
The euro fell 2 percent against the dollar last week, the biggest weekly loss since April 2009, as concern that fiscal deficits will increase in the 16-nation euro region diminished the appeal of the European currency, while a faster-than- expected increase in U.S. gross domestic product boosted demand for the dollar.
Futures Bets
Futures traders raised bets to the highest level in more than a year that the euro will fall against the greenback, data from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on a drop in the euro compared with those on a gain -- so-called net shorts -- was 39,539 on Jan. 26, the largest short position since September 2008.
“The euro has been sold quite a lot, so short positions are probably being unwound,” said Nobuaki Kubo, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of New York-based Brown Brothers Harriman & Co. “This is causing the euro and cross-yen currencies to rebound a bit.”
The euro’s 14-day relative strength index versus the dollar was at 28.15 today, staying below 30 for a third straight day, a sign the currency may be poised to rebound, according to data compiled by Bloomberg.
Fastest Slide
Last year, policy makers loaded up on euros, while analysts at Barclays Plc in London and Aletti Gestielle SGR SpA in Milan predicted central bankers would make good on threats to reduce the greenback’s dominance. Now the euro is in its fastest slide in 10 months amid concern that countries like Greece won’t pay their debts. Billionaire investor George Soros said Jan. 28 that there’s “no attractive alternative” to the dollar.
Traders have spurned European stocks in favor of shares elsewhere for a record 19 straight weeks, “clearly hurting” the currency by draining a net $13 billion from the market, said Geoffrey Yu, a UBS AG analyst. After buying more euros than ever in 2009’s second quarter, central banks pared back, International Monetary Fund data show.
The South African rand and Norwegian krone rose on speculation the economic recovery will boost currencies where interest rates are higher. The rand strengthened 0.6 percent against the dollar to 7.5838. South Africa’s benchmark rate is 7 percent. The Norwegian krone gained 0.6 percent to 5.8944, Norway’s key rate is 1.75 percent.
The Polish zloty gained 1.4 percent against the dollar to 2.8802 and strengthened as much as 1.4 percent to 3.9919 per euro, the most since January.
The dollar advanced last week as the Commerce Department said U.S. GDP increased at a 5.7 percent annual pace from October through December, the fastest pace in six years.
The British pound fell 0.5 percent to $1.5907.
To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
