BLBG: Dollar Near Two-Month High as ECB Signals Concern Over Easing; Baht Drops
The dollar traded near a two-month high against the euro after European Central Bank council member Christian Noyer said monetary easing creates the potential for global imbalances, boosting demand for safer assets.
The euro weakened against 12 of its 16 major counterparts on lingering concern that Portugal and Spain will ask for aid after Ireland received a bailout. Thailand’s baht dropped to an eight-week low before a court decision due as early as today that may force the ruling Democrat party to disband.
“Noyer’s remarks on low rates and worldwide imbalances seem to be causing some selling of the euro and buying of the dollar,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Worries over contagion in Europe from Ireland’s woes also remain.”
The dollar traded at $1.3240 per euro as of 12:56 p.m. in Tokyo from $1.3242 in New York last week, after earlier reaching $1.3182, the strongest since Sept. 21. The U.S. currency was at 84.09 yen from 84.10 yen, after advancing to 84.20 yen, the highest since Sept. 28. The euro was at 111.28 yen from 111.37.
The Dollar Index, which tracks the dollar against the currencies of six major U.S. trading partners, was little changed at 80.387, after touching 80.652, the strongest since Sept. 21.
Address Flow Volatility
Speaking in Tokyo, the ECB’s Noyer called for an international effort to address volatility in financial flows, saying individual efforts risk displacing pressures without defusing them. His proposal underscores the danger of a surge in capital flows to emerging markets that policy makers are concerned will spark asset bubbles.
China should continue to control capital flows before further widening the yuan trading band and letting the currency attain market equilibrium, Xia Bin, an adviser to the People’s Bank of China, wrote in a commentary posted on China Business News today.
The euro is headed for its first monthly decline since August and its worst since May. European Union Economic and Monetary Affairs Commissioner Olli Rehn speaks tomorrow in Brussels.
The cost of insuring Portuguese, Irish and Spanish government debt against default rose to a record last week and the 10-year bond yields of those nations, Italy and Greece averaged more than 7.5 percent, a euro-era record.
“Attention is shifting to the ‘next Ireland’ like Portugal and Spain,” said Yuki Sakasai, a currency strategist at Barclays Bank Plc in Tokyo. “Europe’s problems will probably continue, so people are looking to sell the euro.”
Won’s Monthly Loss
South Korea’s won is headed for its first monthly loss since August. Residents of Yeonpyeong island, where four people died in the Nov. 23 shelling by North Korea, were ordered to seek refuge in bomb shelters yesterday after an artillery shot was heard on the North Korean mainland, a defense ministry spokesman said.
South Korea’s navy yesterday began four days of maneuvers with U.S. warships amid threats of a “merciless” response by Kim Jong Il’s regime should the North’s maritime border be breached. South Korean President Lee Myung Bak vowed to make the North pay for military attacks as China sought talks to defuse tension on the Korean peninsula.
“North Korea continues to shake confidence in the market,” said Ha Joon Woo, a currency dealer at Daegu Bank in Seoul.
The won traded at 1,154.16 per dollar from 1,159.63 last week. The currency touched 1,172.50 the day after the attack on Yeonpyeong, its weakest level since Sept. 9.
2005 Election
Thailand’s baht declined as the Democrat party faces dissolution on charges that it misused a 29 million baht ($956,833) grant from the Election Commission for campaigning in the 2005 election.
The Constitutional Court is scheduled to hear closing statements on the case today. The worst political violence in almost two decades killed more than 89 people in April and May, leading to a sell-off of Thai stocks that weakened the baht.
“This boosts concern among investors over Thailand’s political situation once again and makes people risk averse,” said Hideki Hayashi, a global economist at Mizuho Securities Co. in Tokyo. “People want to see how the situation develops.”
The baht declined 0.2 percent to 30.27 per dollar, earlier touching 30.46, the weakest level since Sept. 30.
To contact the reporters responsible for the story: Monami Yui in Tokyo at myui1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
