Dollar Weakens Against Higher-Yielding Currencies on Global Recovery Signs
Sept. 6 (Bloomberg) -- Simon Derrick, chief currency strategist in London for Bank of New York Mellon Corp., talks about foreign exchange including the outlook for the euro, the pound and the dollar. He speaks with Andrea Catherwood on Bloomberg Television's "The Pulse." (Source: Bloomberg)
The dollar fell against higher- yielding currencies as stocks advanced on signs the global economic recovery remains in place, sapping demand for the greenback as a haven.
The South Korean won and the New Zealand dollar were the biggest gainers among the 16 most-traded currencies after the MSCI Asia Pacific Index of shares climbed the most in more than six weeks. U.S. companies added more jobs than forecast in August, according to a Sept. 3 report. U.K. factory production grew at a record pace in the third quarter on surging export demand, the Engineering Employers Federation said today.
“Last week’s data created a bit of a warm glow around prospects for the global economy, and that’s giving a boost to currencies where they are tightening monetary policy,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “The dollar is being used as a funding currency.”
The dollar was 0.3 percent weaker at 72.29 cents per New Zealand dollar as of 4:04 p.m. in London, and down by 0.4 percent at 1170.45 Korean won. The U.S. currency traded at $1.2880 per euro from $1.2896 at the end of last week and 84.21 yen from 84.31 yen.
Foreign-exchange trading may be subdued today because of the U.S. Labor Day holiday.
Demand for safer assets such as the dollar and the yen waned after the U.S. Labor Department said on Sept. 3 that private payrolls climbed by 67,000 in August, after rising a revised 107,000 in July.
‘Avoid Recession’
“We’re in for a long period of very sluggish growth in the U.S. but it should avoid recession,” said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s largest lender. “As risk aversion trades are taken off, it will put mild downward pressure to the U.S. dollar.”
President Barack Obama will this week urge Congress to permanently extend and expand a research and development tax credit to spur job growth. Obama will lay out the proposal, which would cost about $100 billion over the next decade, in a Sept. 8 speech, according to two administration officials.
The European Central Bank last week raised its 2010 economic growth forecast to about 1.6 percent from its previous prediction of 1 percent, and increased its 2011 projection to 1.4 percent from about 1.2 percent.
The yen weakened for a second day against the Canadian dollar as the Bank of Japan began a policy meeting in Tokyo.
‘Appropriate Action’
Central Bank Governor Masaaki Shirakawa may reiterate his willingness to take further action if last month’s decision to expand a credit program by 10 trillion yen ($118 billion) isn’t enough to support the recovery. Shirakawa said last week the BOJ stands ready to implement “appropriate action as needed.”
“Shirakawa is likely to give his interpretation of the market’s reaction to the BOJ’s recent policy initiatives and voice further concern on the yen’s strength,” said Gareth Berry, a currency strategist at UBS AG in Singapore. “Any possible suggestion from him that the BOJ is willing to consider further easing should put a bit of downward pressure on the yen.”
Governor Shirakawa and his board will likely forego fresh liquidity injections at the meeting, according to all but one of 15 economists surveyed by Bloomberg. The board will keep the benchmark rate at 0.1 percent, where it’s been since 2008, all 15 economists predicted.
Japan’s currency weakened 0.3 percent to 81.36 per Canadian dollar and 0.2 percent to 60.88 per New Zealand dollar.
South Korea’s currency rose for a fourth day versus the dollar as overseas investors boosted their holdings of local equities. Industrial production expanded for the 13th month in July, exports advanced for the 10th month and consumer prices rose 2.6 percent in August, reports showed last week.
“The Korean economy is connected to global demand,” said Sam Hong, a currency dealer at Shinhan Bank in Seoul. “The offshore players have sold a lot of dollars.”
To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net
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