BLBG: Euro Gains a Second Day as Recovery Signs Boost Demand for Risk
By Yoshiaki Nohara and Ron Harui
Nov. 16 (Bloomberg) -- The euro rose for a second day against the dollar as signs the global economy is recovering boosted demand for higher-yielding assets.
The euro gained against 12 of its 16 most-active counterparts as Japan’s gross domestic product expanded for a second-consecutive quarter. The dollar fell against 14 major currencies after Asia-Pacific leaders pledged to maintain stimulus measures until there’s “durable” growth.
“The GDP data were much stronger than expected, boosting risk appetite,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “The bias is for the yen and the dollar to be sold to buy higher-yielding currencies.”
The euro rose to $1.4968 at 6:27 a.m. in London from $1.4903 in New York on Nov. 13. Europe’s currency gained to 134.07 yen from 133.63 yen, after earlier rising to 134.18 yen. The dollar fetched 89.56 yen from 89.66 yen.
Japan’s gross domestic product expanded at an annual 4.8 percent pace in the third quarter, the Cabinet Office reported today in Tokyo, compared with the median economist estimate for 2.9 percent growth. That was up from a revised 2.7 percent expansion in the three months ended June 30.
The 21-member Asia-Pacific Economic Cooperation group, representing 54 percent of the global economy, pledged in a statement over the weekend to “refrain from raising new barriers” to investment and trade. They didn’t mention currency distortions in the statement, which U.S. companies say give China unfair trade advantages.
China’s Yuan
“Nations in the region don’t want China to falter, as its economy is leading the global recovery,” said Minoru Shioiri, Tokyo-based chief manager of foreign exchange trading at Mitsubishi UFJ Securities Co. “There’s no chance that China will let the yuan appreciate dramatically.”
Dominique Strauss-Kahn, the managing director of the International Monetary Fund, voiced support for the dollar and called for a stronger yuan as U.S. President Barack Obama started his first visit to China today in Shanghai.
Near-term “concerns about the dollar can be eased with appropriate policy actions from the U.S. authorities,” Strauss- Kahn said in a speech in Beijing today, adding that it would remain the principal reserve currency “for some time.”
Strauss-Kahn said that a stronger Chinese currency is “part of the package of necessary reforms” to boost the role of consumption in the world’s third-biggest economy.
China’s yuan traded at 6.8264 per dollar versus 6.8263 the previous trading day, according to the China Foreign Exchange Trading System.
Overseas Assets
Losses in the yen were tempered on speculation Japanese investors will bring back earnings on overseas assets. The U.S. will make $100.5 billion in redemption and coupon payments for Treasuries today, according to estimates by Stone & McCarthy Research Associates in Princeton, New Jersey.
“The yen is being bought as Japanese investors bring back earnings on Treasuries,” said Takeshi Tokita, vice president of foreign exchange sales at Mizuho Corporate Bank Ltd. in Tokyo.
The dollar also weakened on speculation Federal Reserve officials will today reaffirm the central bank’s pledge to keep interest rates low to support growth.
Federal Reserve
The Fed this month repeated its intention to leave borrowing costs “exceptionally low” for “an extended period” as long as inflation expectations are stable and unemployment fails to decline. A U.S. report today may show manufacturing in the New York region expanded at a slower pace in November. The New York Fed’s general economic index declined to 30.0 from 34.6 in October, a Bloomberg News survey of economists showed.
“Policy makers’ comments are likely to be in line with those in the statement,” said Kenichi Goto, deputy general manager of the marketing unit at Sumitomo Trust & Banking Corp. in Tokyo. “The trend for selling the dollar and buying higher- yielding currencies is likely to persist.”
Fed Chairman Ben S. Bernanke will speak on the economic outlook at 12:15 p.m. in New York. Dallas Fed President Richard Fisher will speak on the economy at 12:15 p.m. in Tyler, Texas, and Vice Chairman Donald Kohn will speak on “Federal Reserve Policy Challenges” at 5:15 p.m. in Evanston, Illinois.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against six currencies including the euro and yen, dropped 0.4 percent to 75.013.
‘Solid Footing’
Malaysia’s ringgit rose to its strongest level in more than three weeks after Asia-Pacific leaders said yesterday that recovery isn’t on a “solid footing” yet and stimulus measures were still needed.
“Any statement that would help inject confidence into the market will lead to better appetite for risk,” said Gan Kok Kim, head of treasury at OCBC Bank (Malaysia) Bhd. in Kuala Lumpur. “The dollar continues to lose its luster.”
Malaysia may post “significant improvement” in its third- quarter GDP report, central bank Governor Zeti Akhtar Aziz said in Singapore on Nov. 13. The economy shrank 2 percent from a year earlier in the three months through September, according to a Bloomberg survey of economists before the report is released Nov. 20. It contracted 3.9 percent in the second quarter.
The ringgit gained 0.5 percent to 3.363 per dollar, after reaching 3.357, the highest level since Oct. 21.
To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
