BLBG: Dollar Rises Against Euro After Obama Victory in U.S. Election
By Lukanyo Mnyanda and Ye Xie
Nov. 5 (Bloomberg) -- The dollar gained against the euro on speculation Barack Obama, the victor in the U.S. presidential election, will push through policies needed to revive the world's biggest economy.
The currency also rose against the Australian dollar as U.S. Democrats increased their majority in Congress. The euro dropped versus the yen after European Central Bank member Juergen Stark signaled support for interest-rate cuts to bolster the region's shrinking economy. The 15-nation currency also weakened as regional stocks fell.
``Obama's clear win and the Democrats' gains in Congress are dollar-positive, no doubt about it,'' said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt. ``Interest-rate spreads will move strongly in favor of the U.S., where the scope for aggressive cuts is limited.''
The dollar rose 0.9 percent to $1.2863 per euro at 8:22 a.m. in New York, from $1.2981 yesterday, when the greenback fell 2.7 percent. The U.S. currency may strengthen to $1.25 in three months and $1.05 by June, Klawitter forecast. The dollar dropped 0.9 percent to 98.81 yen from 99.70. The euro fell 1.8 percent to 127.13 yen from 129.47. The dollar advanced 1.2 percent to 69.06 U.S. cents per Australian dollar.
The U.S. election put the Democrats in firm control of the federal government for the first time since the early 1990s. Three weeks ago, Obama increased the proposed cost of his ``middle-class rescue plan'' to $175 billion from $115 billion. He will be able to seek support for stimulus spending when Congress returns in less than two weeks.
Stocks Decline
The yen also rose as stock-market losses in Europe made it less attractive to buy overseas assets using funds from Japan. The Dow Jones Stoxx 600 Index lost 2.1 percent, and U.S. stock futures declined. Yesterday, U.S. shares posted their biggest presidential election-day rally in 24 years.
Any yen weakness ``is likely to prove both limited and short-lived as the onset of potentially the worst global recession since the early 1980s continues to drive further dollar- and yen-supportive repatriation flows,'' Lee Hardman, a currency strategist in London at Bank of Tokyo-Mitsubishi Ltd., wrote in a client note today.
Banks deposited a record amount of cash with the ECB overnight, indicating they remained reluctant to lend to each other even as money-market rates fall. The euro interbank offered rate, or Euribor, that banks charge each other for three-month loans declined to the lowest level since March 18, according to the European Banking Federation.
U.S. Jobs Report
Gains in the dollar may be limited by speculation the U.S. economy lost jobs for a 10th month, according to analysts. Nonfarm payrolls shrank by 200,000 in October, according to a Bloomberg survey before a Labor Department report Nov. 7.
``We're seeing a congratulatory bounce in the dollar,'' said Kengo Suzuki, a currency strategist in Tokyo at Shinko Securities Co. ``It's not likely to continue. The U.S. economy is in a weak state, and there are still a lot of questions about what type of policies Obama will put into place.''
The 15-nation euro fell against the yen after Stark told Financial Times Deutschland in an interview that ``we're ready to use all instruments at our disposal and the main instrument is interest-rate policy.''
The ECB will lower its main refinancing rate by a half- percentage point to 3.25 percent tomorrow, according to all 54 economists in a Bloomberg News survey.
`Dovish' ECB
``The market is expecting the ECB to be dovish,'' said Henrik Gullberg, a currency strategist in London at Deutsche Bank AG, the world's biggest foreign-exchange trader. ``The ECB has more scope to cut rates, and from that perspective you'd expect negative developments for the euro.'' The euro may trade at about $1.20 by year-end.
The South Korean won rose 1.8 percent to 1,265.60 per dollar as the region's stocks tracked yesterday's rally on Wall Street.
Asian regulators may limit currency derivatives after losses that helped push the South Korean won to a decade low and caused shares of China's Citic Pacific Ltd. to collapse.
South Korea will announce measures by December to restrict company purchases of the contracts to a percentage of overseas earnings, Hyeon Jung Gun, head of Korea's Financial Supervisory Services derivatives market team, said in a Nov. 3 interview. China plans to improve monitoring of performance and compliance. Hong Kong is investigating improper sales of financial products by banks.
Effective Rate
The yen real effective exchange rate, a measure of its value against the currencies of Japan's trading partners after adjustments for price trends, rose 11.2 percent in October from the previous month, the biggest gain on record, Bank of Japan data showed today. The index was at 111.1, the highest since August 2005.
``The yen is the strongest currency,'' said Yuji Kameoka, senior economist and currency analyst at Daiwa Institute of Research in Tokyo. ``A global economic slowdown and declining asset prices will lead to further yen gains.''
Japan's currency may strengthen to 91 per dollar and 115 versus the euro this year, he said.
The dollar extended its drop versus the yen as ADP Employer Services reported that companies in the U.S. cut an estimated 157,000 jobs in October, more than forecast. The reduction followed a revised 26,000 decrease in September that was larger than previously estimated.
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
