Dollar Declines on Interest-Rate Outlook After Weaker-Than-Forecast Data
May 25 (Bloomberg) -- Mark Grant, managing director at Southwest Securities Inc., and Nobel Prize-winning economist Robert Mundell of Columbia University talk about the outlook for Mario Draghi as president of the European Central Bank, the role of gold in the global monetary system and the possibility that Greece may withdraw from the euro. They talk with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)
The dollar dropped versus the yen and euro as the economy grew less than forecast and jobless-benefit claims unexpectedly rose, adding to speculation the U.S. will lag behind other nations in raising interest rates.
The euro pared gains versus the greenback after Luxembourg’s Jean-Claude Juncker said the International Monetary Fund may not release its portion of aid to Greece next month. European Central Bank President Jean-Claude Trichet said policy makers are “carefully” monitoring inflation, fueling bets the region’s economy is strong enough for higher borrowing costs. The Federal Reserve will keep its benchmark rate near zero until next year, according to a Bloomberg survey.
“Both the GDP and the claims were worse overall,” said Jens Nordvig, a managing director of currency research at Nomura Holdings Inc. in New York. “This is something that suggests that rates in the U.S. are going to stay quite low for the time being. Dollar-yen is always the most sensitive to U.S. rates.”
The dollar tumbled 0.8 percent to 81.29 yen at 10:24 a.m. in New York, from 81.97 yen yesterday. The euro rose 0.3 percent to $1.4123 after earlier gaining as much as 0.8 percent. It depreciated to $1.3970 on May 23, the weakest since March 17. The common currency fell 0.6 percent to 114.82 yen.
U.S. gross domestic product grew at a 1.8 percent annual rate in the first quarter, the same as estimated last month, Commerce Department figures showed today in Washington. That compares with a 3.1 percent gain in the prior quarter. The median forecast of economists surveyed by Bloomberg News called for a 2.2 percent increase. Consumer spending rose 2.2 percent, down from a 2.7 percent initial estimate.
Jobless Claims
Initial claims for unemployment benefits rose by 10,000 to 424,000 in the week ended May 21, Labor Department figures showed today in Washington. The median estimate of economists in a Bloomberg News survey called for a drop to 404,000.
The euro rose earlier against the dollar as Financial Times reported that European Financial Stability Facility Chief Executive Officer Klaus Regling said Asian investors, including China, may buy Portuguese bailout bonds when the EFSF sells them in June, easing concern that the region’s sovereign-debt crisis will spread.
“China has been a driver of much of the price action,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “The inference that China will be buying something put a bid to the euro.”
Investors from Asia bought 16 percent of the 4.75 billion euros ($6.7 billion) of five-year notes sold yesterday to help fund Portugal’s bailout, the European Commission said.
ECB Versus Fed
The ECB raised its main refinancing rate to 1.25 percent last month after keeping it at a record low of 1 percent for almost two years. The Fed has held its target rate at zero to 0.25 percent since December 2008. It’s forecast to keep the benchmark unchanged until the first quarter of 2012, according to the median of 75 estimates in a Bloomberg News survey of economists and analysts.
European policy makers need “to avoid commodity-price increases becoming entrenched in longer-term inflation expectations, which could have second-round effects on wages and prices,” Trichet said at a conference in Berlin today, according to a text provided by the Frankfurt-based ECB. “We are carefully monitoring the situation and we stand ready to do whatever is necessary to fulfill our mandate.”
German Finance Minister Wolfgang Schaeuble said Greece may need more time to reduce its debt to regain access to capital markets, Handelsblatt newspaper reported, citing an interview.
‘More Time’
“It is decisive that Greece implements the program and what it announced in March, including the privatizations of 50 billion euros,” Schaeuble told the newspaper. “Currently, it looks like Greece may need more time.”
The euro has lost 4.5 percent this month versus the yen as European policy makers struggle to find a resolution to Greece’s deficit woes.
“Schaeuble is softening his stance on Greek restructuring, and any sort of indication that reprofiling is off the table in the near term is beneficial for the euro,” said Jessica Hoversen, a New York-based analyst at the futures broker MF Global Holdings Ltd.
Canada’s dollar and Mexico’s peso were the only losers against the greenback among its most-traded counterparts as weaker growth in their largest trading partner damped demand for the nations’ assets.
The Canadian currency dropped 0.4 percent to 98.11 cents per U.S. dollar and the peso fell 0.4 percent to 11.7153.
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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