Euro Rises as U.S. Jobless Claims Drop, Easing Recovery Concern
Sept. 9 (Bloomberg) -- Robert Sinche, chief strategist at Lily Pond Capital Management LLC, talks about China's policy on the yuan. Sinche, speaking with Carol Massar on Bloomberg Television's "In the Loop With Betty Liu," also discusses the potential that the Bank of Japan may attempt to devalue the yen and the outlook for the U.S. dollar. (Source: Bloomberg)
(Corrects time of previous yen high in fourth paragraph.)
The dollar fell against most major currencies as reports showing a bigger-than-forecast drop in U.S. jobless claims and a narrower trade deficit eased concerns the recovery in the world’s biggest economy is faltering.
The greenback weakened versus 11 of its 16 most-traded counterparts and the yen declined as global stocks gained. Australia’s dollar rose to a four-month high against the U.S. currency after a government report showed employers added more jobs than economists forecast. The Canadian dollar touched a three-week high based on speculation the central bank will increase borrowing costs further after yesterday’s boost.
“Both of these numbers tell us that the U.S. economy is moving in the right direction and perhaps the Federal Reserve fears of a more significant slowdown in the fourth quarter may be a bit overdone,” said Kathy Lien, director of currency research at the online foreign-exchange trader GFT Forex, in New York.
The dollar traded at $1.2708 per euro at 3:21 p.m. in New York, compared with $1.2720 yesterday. The common currency slid 0.1 percent to 106.58 yen, from 106.69. The yen was at 83.87 per dollar, compared with 83.88. It touched 83.35 yesterday, the strongest level since May 1995. The Aussie rose 0.6 percent to 92.41 U.S. cents after climbing to 92.77 cents, the highest level since April 30.
The MSCI World Index of stocks in 24 developed nations gained 0.7 percent, and the Standard & Poor’s 500 Index rose 0.7 percent on evidence of a U.S. economic recovery.
Economic Indicators
Applications for U.S. unemployment benefits fell last week more than forecast. Initial jobless claims dropped by 27,000 to 451,000 in the week ended Sept. 4, Labor Department figures showed today in Washington.
The U.S. trade deficit narrowed more than forecast in July as imports fell and exports climbed to the highest level in almost two years. The gap shrank 14 percent, the most since February 2009, to $42.8 billion, Commerce Department figures showed today in Washington.
Economists forecast a deficit of $47 billion, according to the median of 73 projections in a Bloomberg News survey. Imports fell 2.1 percent, while exports increased 1.8 percent to $153.3 billion, the highest since August 2008.
The yen traded at almost a 15-year high versus the dollar even after Japan’s Finance Minister Yoshihiko Noda said the government is examining the effectiveness of intervention and is ready to take bold action on currencies when needed. The currency’s rally this year has hurt the nation’s exporters.
Yen Demand
“You’re still seeing investors heavily buying the yen as a hedge against the global uncertainties that have clouded the markets,” said John Doyle, a strategist at the currency-trading firm Tempus Consulting Inc. in Washington. “Prime Minister Noda said what is probably one of the stronger statements of the summer so far.”
The yen has advanced 15 percent this year, the biggest gain among the developed-world currencies, according to Bloomberg Correlation-Weighted Currency Indices. The euro has dropped 10 percent, and the dollar is up 2.2 percent.
The euro weakened earlier versus the dollar after FT Deutschland cited the European Central Bank Executive Board member Juergen Stark as saying some German banks need more capital.
“The euro could be entering the next phase lower,” said Jessica Hoversen, a Chicago-based analyst at the futures broker MF Global Holdings Ltd. “Now that growth is starting to crack, it’s losing that foothold.”
Stark on Banks
Stark told members of Chancellor Angela Merkel’s Christian Democratic Party that German savings banks, which weren’t subject to European Union stress tests, and state-owned Landesbanks are particularly at risk, FT Deutschland reported. The Association of German Banks said this week the nation’s 10 biggest lenders may need about 105 billion euros in fresh capital.
Greece may need to extend a 110-billion-euro ($140 billion) bailout from the European Union and the International Monetary Fund by an extra three to six years to avoid a default on its debt, JPMorgan Chase & Co. said.
“I don’t think they have a choice, really, given their deficit is so large,” said Pavan Wadhwa, head of European interest-rate strategy at JPMorgan in London. “Either other countries roll over the loans, effectively forgiving debt, or Greece restructures its debt and the market starts to freeze up again. They will need more help after the package expires if they were to avoid an outright default.”
The IMF-EU plan, unveiled in May, is planned to end in 2012. Investors have dumped Greek bonds after the government last year announced a budget shortfall of 13.6 percent of gross domestic product, the second-highest level in the EU. Greece plans to cut its deficit to 8.1 percent of gross domestic product this year and 7.6 percent in 2011.
Australian Dollar
The Aussie rose after statistics bureau in Sydney said employers added 30,900 workers in August, which may add to pressure on the central bank to raise interest rates. The median estimate of economists surveyed by Bloomberg was for an increase of 25,000 jobs.
The Canadian currency appreciated 0.4 percent to C$1.0337 per U.S. dollar, from C$1.0375 yesterday. It touched C$1.0302, the strongest since Aug. 19.
The Bank of Canada increased the target lending rate to 1 percent from 0.75 percent yesterday and signaled it may be willing to raise borrowing costs more this year.
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
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