Dollar Advances as U.S. Stock Losses, Foreclosure Probe Spur Safety Demand
The dollar rose for the first time in four days versus the euro as declines in stocks around the world and a U.S. probe into home foreclosures boosted demand for the greenback as a refuge.
The U.S. currency strengthened versus 14 of its 16 major counterparts as Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said late yesterday that additional asset purchases by the central bank may have a “more muted effect” than anticipated. The euro fell on speculation European officials may signal discomfort with the currency’s strength as it heads for its longest weekly winning streak since December 2008 against the greenback.
“Worries over the probe appear to be weighing on equities,” said Yuji Saito, director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. “This may lead to risk aversion, which could cause some buying of the dollar and the yen.”
The dollar rose to $1.4059 per euro at 7:08 a.m. in London from $1.4084 in New York yesterday, when it reached $1.4122, the weakest since Jan. 26. Today’s advance pared to 0.9 percent the U.S. currency’s decline since Oct. 8. The dollar was at 81.22 yen from 81.48 yesterday, when it touched 80.89, the lowest since April 1995. The euro slid to 114.20 yen from 114.76 yen.
Japanese Prime Minister Naoto Kan said today in parliament he is “very concerned” about the yen’s rise to a 15-year high. Kan last month authorized Japan’s first currency intervention since 2004.
Asian Stocks Fall
The U.S. and Japanese currencies gained after the MSCI Asia Pacific Index fell 0.7 percent. U.S. stocks declined yesterday, dragging benchmark indexes down from five-month highs, as financial companies slumped.
Top legal officers of all 50 U.S. states opened this week a joint investigation into home foreclosures, saying they will seek an immediate halt to any improper practices. The group intends to establish independent monitoring, Iowa Attorney General Tom Miller, who is leading the probe, said Oct. 13 in a statement.
“U.S. bank shares were hit as investors grew increasingly concerned over how a nationwide probe into the mortgage industry’s foreclosure practices will affect earnings,” Khoon Goh, head of market economics at ANZ National Bank Ltd. in Wellington, wrote in a research note.
The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against currencies including the euro, yen and Swiss franc, was little changed at 76.583. It has dropped 4.8 percent since Sept. 21, when the Fed said in a statement following its policy meeting that it’s prepared “to provide additional accommodation if needed” to support the recovery.
“Financial markets are functioning much better in late 2010 than they were in early 2009,” Kocherlakota said yesterday. As a result, “the relevant spreads are lower and I suspect it will be somewhat more challenging for the Fed to impact them.”
His remarks place Kocherlakota closer to Fed officials like Richard Fisher of Dallas and Thomas Hoenig of Kansas City in questioning the effectiveness of further quantitative easing steps. Fed Chairman Ben S. Bernanke will speak on policy objectives and tools in Boston today.
A former top Japanese currency official said today gains in the yen may be “coming to an end” as investors have priced in another round of monetary easing by the Fed.
“There’s no fundamental reason for the yen to strengthen,” said Makoto Utsumi, who led currency policy from 1989 to 1991 and conducted currency intervention after the signing the Plaza Accord in 1985. “The more the yen strengthens, the bigger the reversal could be.”
The euro fell from near an eight-month high versus the dollar after European Central Bank Governing Council member Christian Noyer said yesterday that global authorities need to find a joint solution to prevent disorderly currency moves.
‘Reflect Economic Fundamentals’
European Union Monetary Affairs Commissioner Olli Rehn said “exchange rates should reflect economic fundamentals,” in an e-mailed copy of a speech given in Helsinki yesterday. EU President Herman Van Rompuy speaks later today in Brussels.
“European officials seem worried over the euro’s rapid appreciation,” said Yoh Nihei, a Tokyo-based trading group manager at Tokai Tokyo Securities Co. “Its recent gains are probably too fast, and it could hurt exports. There’s a downside risk for the euro.”
The dollar still headed for a fifth weekly decline versus the euro on speculation the U.S. economic recovery is faltering, adding to traders’ bets the Fed will ease policy to support growth and spur price gains.
Consumer prices rose 0.2 percent in September after a 0.3 percent gain the prior month, according to the median forecast of economists surveyed by Bloomberg News before today’s report. Prices excluding food and energy increased in September for a sixth month at an annual rate of 0.9 percent, matching the slowest year-over-year rate of gains since 1966, the Labor Department is forecast to say.
“The Fed is the elephant in the room,” said Rebecca Patterson, global head of foreign exchange at the private banking unit of JPMorgan Chase & Co., in a Bloomberg Television interview. “The consensus is building that we are going to get more quantitative easing from the Fed. Right now a weaker dollar is definitely in America’s interest.”
Interest-rate futures contracts on the Chicago Board of Trade showed a 34 percent chance Fed policy makers would cut the target lending rate to zero by year-end. The probability was 26 percent a month ago. The key U.S. rate has been at a range of zero to 0.25 percent since December 2008.
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