Dollar Falls to Two-Month Low as Profit Outlook, Greek Debt Sale Buoy Risk
The dollar fell to a two-month low versus the euro as speculation U.S. corporate earnings will beat analysts’ estimates and Greece’s sale of debt encouraged investors to buy currencies related to economic growth.
Sterling rose for the first time in four days against the dollar as the U.K.’s inflation slowed in June less than economists forecast. The euro dropped earlier against the dollar as Moody’s Investors Service reduced Portugal’s credit rating.
“Everybody loves equities, and that has squeezed out a lot of euro shorts,” said Dean Popplewell, an analyst at the online currency-trading firm Oanda Corp. in Toronto. “It shows the market was caught flatfooted by owning dollars over the last few trading sessions.” A short is a bet a currency will fall.
The dollar declined 0.9 percent to $1.2716 versus the euro at 4:03 p.m. in New York, from $1.2596 yesterday. It earlier slid to $1.2739, matching the level on May 12. The euro appreciated 0.8 percent to 112.50 yen, from 111.62. The yen climbed 0.2 percent to 88.47 per dollar, from 88.62.
Norway’s krone advanced 1.4 percent to 6.2658 versus the dollar and the Mexican peso gained 1.1 percent to 12.6978 on speculation investors increased trades in which they borrow where interest rates are low to buy higher-yielding assets. The Federal Reserve’s target lending rate of zero to 0.25 percent makes the dollar popular for funding such transactions.
The Standard & Poor’s 500 Index rose 1.5 percent after rallying 5.4 percent last week. The Dow Jones Industrial Average advanced 1.4 percent today.
Alcoa Earnings
Alcoa, the biggest U.S. aluminum producer and the first company in the Dow to give second-quarter results, reported sales and profit that exceeded estimates and the company forecast stronger global demand.
The euro rose against the greenback as Greece sold Treasury bills at a rate below the 5 percent charged by the European Union when it rescued the nation from default.
Greece sold 1.625 billion euros ($2.070 billion) of 26-week Treasury bills at a yield of 4.65 percent, the debt agency said today. Investors bid for 3.64 times the securities offered.
The euro will rally to $1.31, a level last seen on May 4, according to strategists at Citigroup Inc. including New York- based Tom Fitzpatrick, citing trading patterns.
The New York-based bank established a long position on the 16-nation currency at $1.2578 after it formed a reverse head- and-shoulders pattern. Investors should exit the trade if the euro falls to $1.2460, according to Citigroup. A long position is a bet a security will gain.
Head and Shoulders
A head-and-shoulders pattern is formed when a currency makes three consecutive peaks on a chart, with the middle being the highest. A breach of the neckline, connecting the two lowest points, may signal the end of a trend. A reverse head-and- shoulders pattern has three troughs.
The pound rose 0.9 percent to $1.5170 as the Office for National Statistics reported that Britain’s inflation slowed in June less than economists forecast.
Consumer prices climbed 3.2 percent from a year earlier, compared with a 3.4 percent advance in May. Economists predicted a 3.1 percent increase, according to the median of 27 forecasts in a Bloomberg News survey.
The dollar remained lower against the yen after the Commerce Department reported that the U.S. trade deficit unexpectedly widened to $42.3 billion in May, from $40.3 billion in the previous month. The median forecast of 72 economists in a Bloomberg News survey was for a narrowing to $39 billion.
Portugal Downgraded
The euro weakened earlier versus the dollar as Portugal was cut two notches to A1 by Moody’s, which cited a growing debt burden and weak economic growth prospects.
European officials urged banks to try to raise money themselves before seeking state support if stress tests designed to demonstrate the resilience of the region’s banking system reveal vulnerabilities.
“It is firstly up to the banks themselves,” Dutch Finance Minister Jan Kees de Jager said in Brussels yesterday after a meeting with euro-area counterparts. “They will get a certain period to refinance themselves in the market, but the countries will immediately announce that there is a certain backstop.”
European Union regulators are examining the strength of 91 banks to determine whether they can survive potential losses on sovereign-debt holdings.
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
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