Dollar Advances as China Interest-Rate Increase Sparks Demand for Safety
Dollar Advances on Growth Concern After China’s Rate Increas
Andrew Harrer/Bloomberg
Sheets of one hundred dollar bills wait to be cut into singles at the Bureau of Engraving and Printing in Washington.
Sheets of one hundred dollar bills wait to be cut into singles at the Bureau of Engraving and Printing in Washington. Photographer: Andrew Harrer/Bloomberg
Dec. 22 (Bloomberg) -- Piers Hillier, chief investment officer at Liverpool Victoria Asset Management, talks about the outlook for Japanese equities and his investment strategy. He speaks with Francine Lacqua on Bloomberg Television's "On The Move." (Source: Bloomberg)
The dollar and yen were near three- week highs against the euro on concern global economic growth may slow after China increased interest rates for the second time since mid-October.
The U.S. currency maintained gains against most of its major counterparts as JPMorgan Chase & Co. and Morgan Stanley said China’s monetary tightening in 2011 may be mainly in the first half as officials tackle the fastest inflation in more than two years. The dollar was also supported before data forecast to show U.S. consumer confidence advanced.
“Reaction on China’s move has been somewhat muted, still the dollar is being supported against the euro,” said Kazuyuki Kato, treasury department manager in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-biggest bank. “Investors are not willing to take risk, as the market is thin near year- end.”
The dollar was at $1.3116 per euro as of 11:42 a.m. in Tokyo from $1.3122 last week. It touched $1.3055 on Dec. 23, the highest since Dec. 1. The yen was at 108.79 per euro from 108.77. It earlier reached 108.43 per euro, the strongest since Dec. 1. The dollar fetched 82.94 yen from 82.88 yen.
The People’s Bank of China increased key one-year lending and deposit rates by 25 basis points on Christmas Day in its second move since mid-October. The change took effect yesterday.
China’s benchmark lending rate rose to 5.81 percent, compared with 7.47 percent before cuts from late 2008 to counter the global financial crisis. It will climb to 6.56 percent by the end of next year, according to the median forecast in a Bloomberg News survey of economists this month.
China ‘Surprise’
The deposit rate increased to 2.75 percent, compared with the 5.1 percent annual pace of inflation in November.
The interest-rate move “came as a surprise, and I expect China to keep cracking down on inflation,” said Tomokazu Matsufuji, a dealer in Tokyo at SBI Liquidity Market Co., a unit of financier SBI Holdings Inc. “This is likely to be a yen- buying factor in the short term.”
China may raise rates as many as three times in the first half of next year, according to Morgan Stanley, while JPMorgan forecasts two increases in that period.
The yen typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive because it means the nation doesn’t have to rely on overseas lenders. The dollar benefits as the world’s main reserve currency.
China’s Stocks
The yen has gained 12 percent this year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The euro has dropped 11 percent, while the dollar is down 1.3 percent.
The dollar and yen pared earlier gains against the euro as advances by Asian stocks countered growth concerns following China’s interest rate increase.
China’s officials “won’t do anything to destroy economic growth,” said Keiji Matsumoto, a currency strategist in Tokyo at Nikko Cordial Securities Inc. “Impact has been very limited on currencies, since it happened when investors don’t want to move a lot near year-end. They will start pricing in further possible actions once they enter next year.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, advanced 1.4 percent.
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, was little changed at 80.494, snapping a two-day loss.
‘Paying Attention’
The Conference Board’s U.S. consumer confidence index increased to 56.4 this month from 54.1 in November, according to the median estimate of economists surveyed by Bloomberg News before the data tomorrow.
“Investors are paying attention to the consumer confidence data to get any hint on economic prospects, as it reflects the trend in Christmas sales,” said Daisaku Ueno, president of Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “A positive number will likely push the dollar higher.”
The greenback gained 0.2 percent to $1.0026 versus the Australian dollar. It strengthened 0.2 percent to 74.80 against the New Zealand dollar. Markets in Australia and New Zealand are closed for public holidays today and tomorrow.
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
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