BLBG: Dollar Advances as Stocks Decline After Greek Credit Downgrade
By Anna Rascouet and Yasuhiko Seki
Dec. 17 (Bloomberg) -- The dollar rose to the highest level against the euro in three months and the yen gained as declines in stocks stoked demand for the currencies as a refuge amid concern nations such as Greece may struggle to pay their debts.
The dollar advanced before reports forecast to show U.S. initial jobless claims slowed and the outlook for the world’s largest economy improved for an eighth month. The euro dropped after Standard & Poor’s lowered Greece’s rating yesterday for the second time this year. The yen climbed the most against the Norwegian krone and Australian dollar as the MSCI World Index declined 0.9 percent.
“Risky positions are being taken off the table,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “What triggered the move is the S&P downgrade of Greece.”
The dollar appreciated to $1.4329 per euro, the highest level since Sept. 8, before trading at $1.4361 as of 6:43 a.m. in New York, from $1.4531 yesterday. The U.S. currency was at 89.90 yen, from 89.78 yen, after earlier rising to 90.26, the strongest level since Dec. 7. The euro weakened to as low as 128.92 yen, before trading at 129.08 yen, from 130.46 yen.
U.S. initial jobless claims fell to 465,000 last week, from 474,000 in the week to Dec. 5, according to a Bloomberg survey of economists before the Labor Department’s report. A separate survey showed the Conference Board’s index of leading indicators, a gauge of the U.S. outlook for the next three to six months, rose 0.7 percent in November, following a 0.3 percent gain the previous month. Both reports are scheduled for release today.
‘Household Spending’
“Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit,” the Federal Open Market Committee said in its policy statement yesterday after meeting in Washington. Deterioration in the labor market is “abating,” it said.
Federal Reserve policy makers held the target rate for overnight lending between banks at zero to 0.25 percent, a decision forecast by all 98 economists in a Bloomberg survey.
“With the Fed’s statement, people who didn’t expect it to hike rates in 2010 will revise their view, and this helps the dollar across the board,” Leuchtmann said.
Bullish on Dollar
Investors turned bullish on the dollar for the first time since March as the U.S. economy showed evidence of a sustained recovery, a survey of Bloomberg users released yesterday indicated.
Sentiment toward the currency rose to 51.99 in December, according to the survey. A reading above 50 indicates Bloomberg users expect the dollar to strengthen. The reading was last above 50 in March, when it reached 53.41.
“With the key driving force gradually shifting toward interest-rate differentials from risk sentiment, good economic data may begin to support the dollar more directly,” said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow Ltd. in Tokyo.
The euro declined for a third day against the dollar after S&P downgraded Greece to BBB+ from A- and signaled it may lower the level further. Fitch Ratings cut Greece’s sovereign rating to BBB+ on Dec. 8.
The yen climbed and the Australian dollar fell as the Dow Jones Stoxx 600 Index of shares dropped 0.6 percent and futures on the Standard & Poor’s 500 Index declined 0.6 percent. Australia’s dollar weakened 1.2 percent to 79.93 yen.
The Norwegian krone fell against all 16 most-traded currencies tracked by Bloomberg as the country’s unemployment rate rose to 2.7 percent, its first increase in five months. Norway’s jobless rate has remained the lowest in Europe through the economic slump as Prime Minister Jens Stoltenberg’s government spent a record amount to support the labor market.
The krone weakened as much as 1.8 percent against the dollar, the biggest drop this month, before trading 1.6 percent weaker at 5.8514 per dollar.
To contact the reporters on this story: Anna Rascouet in London at arascouet@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.
