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Dollar Rises as Drop in Sentiment Revives Demand for Greenback's Safety
The dollar advanced against most of its major counterparts as a decline in U.S. consumer sentiment to a five-month low revived demand for the relative safety of the world’s main reserve currency.
The euro climbed to a two-month high against the yen and gained versus the Swiss franc after a report showed German consumer confidence will rise in August. The dollar rallied the most versus the yen in almost two months after yields on two- year Treasury notes increased as the government sold $38 billion of the securities.
“There a bit of sobering up after a nice run-up in the last couple of days,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “It’s risk on versus risk off.”
The dollar traded at $1.3006 per euro at 4:08 p.m. in New York, compared with $1.2994 yesterday, after reaching $1.3046, the weakest level since May 10. The yen lost 1.3 percent to 114.37 per euro, from 112.89, after reaching 114.38, the weakest level since May 21.
Canada’s currency slid 0.4 percent to C$1.0360 per U.S. dollar and the Norwegian krone lost 0.1 percent to 6.1687 as a fluctuation in stocks on the U.S. sentiment data discouraged demand for currencies related to economic growth.
The Conference Board’s index of consumer confidence dropped to 50.4 this month from a revised 54.3 in June, the New York- based private research group reported today. The median forecast of 73 economists in a Bloomberg News survey was for a slide to 51 from a previously reported 52.9.
Fluctuating Equities
The Standard & Poor’s 500 Index lost 0.1 percent after earlier rising 0.5 percent and erasing its decline since Dec. 31. The Dow Jones Industrial Average gained 0.1 percent.
The U.S. currency advanced as much as 1.3 percent to 87.97 yen in the biggest intraday gain since June 2. Treasury two-year note yields increased as much as 0.06 percentage point to 0.64 percent in the biggest intraday climb since June 10. The government sold the securities in the first of three note auctions this week totaling $104 billion.
The dollar-yen’s recent weakness “has been related to the very low level of U.S. yields,” said Todd Elmer, a currency strategist at Citigroup Inc. in New York. “The fact that they’re rebounding at this stage is likely to lend the pair some support.”
The euro rallied versus the yen as the Nuremberg-based market research company GfK AG said a German consumer sentiment index based on a survey of 2,000 people will climb to 3.9 in August from a revised 3.6 this month. The median forecast of 25 estimates in a Bloomberg News survey was for the index to remain unchanged at July’s initial reading of 3.5.
Weaker Franc
The Swiss franc depreciated 1.2 percent to 1.3789 per euro, from 1.3625, after earlier declining to 1.3796, the weakest level since June 21.
The Brazilian real’s 6.2 percent appreciation versus the greenback over the past two months spurred speculation that the central bank will buy dollars in the futures market for the first time in 14 months.
Central bank officials called currency traders on July 23 to gauge their demand for reverse currency swaps, which allow policy makers to sell the real for dollars in the futures market, according to BNP Paribas SA, Nomura Holdings Inc. and CM Capital Markets. A central bank official declined to comment yesterday.
Brazil’s real depreciated 0.4 percent to 1.7698 per dollar, from 1.7624. It reached 1.7496 on July 13, the strongest level since May 4.
Outlook for Real
“Appreciation potential for the Brazilian real is limited,” Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York, wrote in a note to clients. “For now, that 1.75 floor seems to be a formidable barrier for the Brazilian real, but a stronger risk-on trading environment could see that level broken.”
Japanese Finance Minister Yoshihiko Noda refrained from commenting on the yen’s strength today in a departure from his predecessor’s attempts to curb volatility by speaking about movements in foreign-exchange markets.
When asked by reporters about the currency, which has hovered at almost a seven-month high against the dollar since the European bank stress tests, Noda only said investors welcomed the results of the examination.
The yen has averaged 90.92 against the dollar in 2010, putting it on course for its strongest year against the U.S. dollar since currencies began trading freely in 1971, according to data compiled by Bloomberg.
That will limit profit at Toyota Motor Corp., Panasonic Corp. and other companies scheduled to report earnings over the next two weeks even as exports have climbed for the past seven straight months.
The yen has advanced 9.3 percent this year in the biggest gain among developed-world counterparts, according to Bloomberg Correlation-Weighted Currency Indices. The euro has dropped 7.7 percent, while the dollar is up 2.8 percent.
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
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