BS: Dollar Weakens as Treasury Yields Retreat From Six-Month High
Dec. 9 (Bloomberg) -- The dollar fell versus the euro and yen as benchmark Treasury yields dropped from their highest level in six months, tempering demand for the greenback.
The U.S. currency weakened against 15 of its 16 major counterparts before Federal Reserve policy makers meet on Dec. 14 to discuss a potential plan to extend Treasury purchases beyond the $600 billion already announced. The Australian dollar climbed after a government report showed employers in the nation added more than twice as many jobs as economists had estimated.
“U.S. economic fundamentals have clearly improved compared to about six months ago, yet they are not strong enough to push up yields,” said Masashi Murata, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of New York-based Brown Brothers Harriman & Co. “The dollar is likely to struggle to rise in the short term.”
The U.S. currency fell to $1.3308 per euro as of 2:25 p.m. in Tokyo from $1.3262 in New York yesterday. The dollar dropped to 83.75 yen from 84.04 yen. The yen was at 111.46 per euro from 111.45, following a 0.7 percent drop yesterday.
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, fell 0.3 percent to 79.752.
Treasury 10-year yields fell four basis points, or 0.04 percentage point, to 3.23 percent today, according to BGCantor Market Data. They rose to 3.33 percent yesterday, the highest since June, after U.S. President Barack Obama this week agreed to extend tax reductions for two years and a payroll-tax cut.
Fed’s Outlook
The purchase of more U.S. government bonds than planned is “certainly possible,” Fed Chairman Ben S. Bernanke said in an interview broadcast Dec. 5 on CBS Corp.’s “60 Minutes” program. “It depends on the efficacy of the program” and the outlook for inflation and the economy, Bernanke said.
“Fed officials are unlikely to start to seek exit measures easily,” said Daisuke Karakama, a market economist at Mizuho Corporate Bank Ltd., Japan’s second-largest publicly traded lender in Tokyo. “The Fed will maintain its stance and won’t tolerate a lot of gains in the dollar.”
The premium offered by 10-year government bonds in the U.S. over Japan narrowed to 2 percentage points today after widening to about 2.04 points yesterday, the most since June, data compiled by Bloomberg show.
The dollar has fallen 1.4 percent this year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The euro has dropped 9.1 percent. The yen is up 11 percent.
U.S. Growth Signs
Losses in the dollar were limited before reports that economists said will show U.S. initial jobless claims fell and consumer confidence improved.
“A rise in growth expectations has boosted bond yields,” said Hitoshi Asaoka, senior strategist at Mizuho Trust & Banking Co. in Tokyo, a unit of Japan’s second-largest bank. “That led to gains in the dollar. This buying trend will continue for a while, but it’s too optimistic to think yields will stay high.”
U.S. initial jobless claims declined to 425,000 last week from 436,000 the previous week, according to the median estimate of economists in a Bloomberg News survey before today’s data. The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose to 72.5 this month from 71.6 in November, according to another Bloomberg survey before tomorrow’s data.
Australia’s Jobs
The Australian dollar rose today as the number of people employed in Australia gained 54,600 last month from October, the statistics bureau said in Sydney. That compares with the median forecast for a 20,000 increase in a Bloomberg News survey of economists. The jobless rate fell to 5.2 percent from 5.4 percent a month earlier.
“This is significant data and it supports the Australian dollar,” said Robert Rennie, currency-research head in Sydney at Westpac Banking Corp. “The market is more or less fully priced for a hike by September next year, today’s data suggests that you probably want to start bringing that forward.”
Australia’s dollar gained to 98.69 U.S. cents from 97.96 cents. The so-called Aussie advanced to 82.65 yen from 82.33 yen.
New Zealand’s dollar fell against Australia’s after the smaller country’s central bank said borrowing costs will likely rise “to a more limited extent” over the next two years. Governor Alan Bollard left the key rate at 3 percent today.
“The high currency has been inhibiting the recovery as well and Bollard’s general tone was dovish,” said Tim Kelleher, vice-president of institutional banking and markets at Commonwealth Bank of Australia in Auckland. The so-called kiwi may weaken toward 73.75 U.S. cents, he said.
New Zealand’s dollar fell 0.6 percent to NZ$1.3181 against Australia’s. The kiwi was at 74.87 U.S. cents from 74.75 cents.
Movement in the yen was limited after a Cabinet Office report today showed Japan’s economy grew at an annualized 4.5 percent rate in the third quarter, faster than the 3.9 percent pace reported last month.
--With assistance from Candice Zachariahs in Mumbai. Editors: Nate Hosoda, Jonathan Annells
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
