Dollar Drops to Three-Week Low Versus Yen on Fed Rate Outlook; Euro Jumps
Euro May Fall to 1-Month Low Against Dollar
Hannelore Foerster/Bloomberg
Photographer: Hannelore Foerster/Bloomberg
April 21 (Bloomberg) -- Greg Anderson, senior currency strategist at Citigroup Inc., talks about the outlook for the U.S. dollar and other major global currencies. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
April 20 (Bloomberg) -- Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., talks about the outlook for the dollar and euro. Bennenbroek, speaking with Julie Hyman on Bloomberg Television's "Fast Forward," also discusses Federal Reserve monetary policy. (Source: Bloomberg)
April 19 (Bloomberg) -- Simon Derrick, chief currency strategist at BNY Mellon Corp, discusses the U.S. fiscal deficit and outlook for the dollar. He talks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
The dollar fell to a three-week low against the yen on speculation the Federal Reserve will reiterate next week its intention to keep interest rates near zero, damping the appeal of U.S. assets.
The euro surged to a 16-month high versus the dollar in the holiday-shortened trading week as signs that the region’s economy is gathering momentum fueled speculation the European Central Bank will raise interest rates further. The Australian dollar, the biggest winner this week among major counterparts to the greenback, climbed to a record as stock and commodity price gains drove investors to higher-yielding currencies.
“Market perceptions seem to be intensifying that the Fed’s quantitative easing stance will continue,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The bias is likely to sell the dollar.”
The dollar dropped 1.5 percent to 81.88 yen yesterday from 83.13 yen on April 15, for a second weekly loss. The euro advanced to $1.4585, from $1.4430, and reached $1.4649, the highest level since December 2009. Australia’s dollar rose 1.7 percent to $1.0741, from $1.0568, after climbing to $1.0775, the strongest since it was freely floated in 1983.
Financial markets in countries including the U.S. and U.K. were closed yesterday for the Good Friday holiday.
The likelihood Fed policy makers will raise the target rate for overnight lending between banks by their December meeting was 25 percent, down from 33 percent odds a week earlier, Fed funds futures showed on April 21. The U.S. central bank has kept the benchmark at zero to 0.25 percent since December 2008.
Fed Meeting
The Federal Open Market Committee announces its policy decision on April 27, when it will likely hold the benchmark rate in a range of zero to 0.25 percent, according to all 80 economists surveyed by Bloomberg. Most of the 50 analysts in a Bloomberg survey last month said they expect the Fed will keep its bond portfolio stable for some time after its $600 billion purchase program ends in June.
“The dollar is in a hopeless situation, paralyzed by low rates, a fact likely to be reaffirmed by the FOMC next week,” analysts led by Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., wrote in a note dated April 21.
Standard & Poor’s this week put the U.S. government on notice that it risks losing its AAA credit rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt. S&P maintained its top rating on U.S. long-term debt while lowering the outlook to “negative” for the first time.
Services, Manufacturing
The euro rose 1.1 percent this week as reports showed Europe’s services and manufacturing growth unexpectedly accelerated in April, suggesting the region’s economy is weathering surging energy costs and austerity measures.
A composite index based on a survey of euro-area purchasing managers in the services and manufacturing industries rose to 57.8 from 57.6 in March, London-based Markit Economics said on April 19. The median estimate of economists surveyed by Bloomberg was for a drop to 57.
“The euro-zone’s recovery looks solid,” said Hitoshi Asaoka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “As long as inflation is on the upside, market expectations for European Central Bank rate hikes will likely persist, which is euro-supportive.”
Higher energy costs pushed German inflation to 2.3 percent in March. The ECB, which aims to keep inflation below 2 percent, raised its key interest rate by a quarter-percentage point to 1.25 percent this month. It left the door open for further moves even as a sovereign debt crisis damps growth in peripheral nations such as Greece, Portugal and Ireland.
Riksbank Rate
Sweden’s krona strengthened to its highest level against the dollar in more than 2 1/2 years after Riksbank increased its target lending rate by a quarter-percentage point to 1.75 percent and maintained plans for more tightening.
The krona has gained 4.7 percent this year, the best performer tracked by Bloomberg Correlation-Weighted Currency Indexes. Economic growth and faster inflation have forced policy makers to raise the key rate six times since July.
The Swedish currency rose 1.5 percent to 6.0927 per dollar, from 6.1848, after climbing to 6.0736, the most since August 2008.
The Australian and New Zealand dollars climbed for a fifth week against the greenback as commodity prices and stocks around the world rose. The MSCI World (MXWO) Index has climbed 1.7 percent this week while the Thomson Reuters/Jefferies CRB Commodity Price Index has gained 1.3 percent.
Commodity Prices
“Commodity markets are doing well, boosting the Aussie dollar’s allure,” Junichi Ishikawa, a Tokyo-based market analyst at IG Markets Securities Ltd. wrote in a note to clients.
Benchmark interest rates are 4.75 percent in Australia and 2.5 percent in New Zealand, compared with as low as zero in the U.S. and Japan, attracting investors to the South Pacific nations’ higher-yielding assets.
New Zealand’s dollar strengthened 0.3 percent to 80.19 U.S. cents, from 79.95 cents, after advancing to 80.38 cents, the highest level since March 2008.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
Rate this Page