BLBG: Dollar Heads for Weekly Loss as Policies Revive Risk Appetite
By Ron Harui and Stanley White
Nov. 28 (Bloomberg) -- The dollar headed for its biggest weekly decline in almost three years against the euro on speculation policy makers’ steps to spur growth and lending reduced demand for the relative safety of U.S. assets.
The greenback was also on course for its fourth weekly loss versus the yen after the Federal Reserve committed $800 billion to ending a seizure in credit markets, the European Union proposed a 200 billion euro ($258 billion) stimulus package and China lowered interest rates by the most in 11 years. The Australian and New Zealand dollars were set for weekly gains as improved risk appetite boosted higher-yielding assets.
“We’ve seen an end to the panicked repatriation flows that have buoyed the U.S. dollar,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Countries are working to solve the global economic crisis and their measures will eventually take hold. This is starting to put a floor under market sentiment.”
The dollar traded at $1.2907 per euro as of 2:08 p.m. in Tokyo, little changed from yesterday and down 2.5 percent from Nov. 21, the biggest weekly drop since January 2006. The dollar bought 95.26 yen from 95.19 yesterday and 95.96 a week ago. The euro was quoted at 122.94 yen from 122.89 yesterday, for a 1.9 percent gain this week. The dollar may decline to $1.2930 versus the euro today, Soma said.
Against the greenback, Australia’s dollar rose 3.8 percent to 65.67 U.S. cents from 63.25 cents in New York on Nov. 21. New Zealand’s dollar climbed 2.9 percent to 55.26 U.S. cents and South Korea’s won advanced 2.4 percent to 1,460.60.
Indian Rupee
The Indian rupee fell 0.9 percent today to 49.89 per dollar one day after terrorist attacks across Mumbai, the country’s financial hub, left at least 120 people dead. Authorities closed stock, bond, commodity and currency markets yesterday.
The dollar was set for a third monthly decline against the yen and its first monthly loss versus the euro since June, as the Fed said on Nov. 25 it will devote $800 billion in new funding to bolster credit flow to homebuyers, consumers and small businesses and will take on credit risk by buying debt.
The EU proposed a stimulus package for its 27-member countries on Nov. 26 after data this month showed the euro region fell into a recession in the third quarter for the first time since the introduction of the common currency in 1999.
The People’s Bank of China reduced its one-year lending and deposit rates by 1.08 percentage points on Nov. 26. The lending rate fell to 5.58 percent and the deposit rate to 2.52 percent.
Gains in the euro may be tempered by European reports today that economists say will show slowing inflation and rising unemployment, supporting the case for the region’s central bank to cut interest rates.
‘Quite Weak’
“The outlook for the euro is quite weak,” said Stephen Halmarick, co-head of economic and market analysis at Citigroup Inc. in Sydney. “We’ve got the European Central Bank easing interest rates much more aggressively in the next few months and further weakness in the European economy.”
The inflation rate in the euro area fell to a 14-month low of 2.4 percent in November, according to a Bloomberg News survey of economists. The European Union statistics office will release the report at 11 a.m. in Luxembourg. A separate report may show the unemployment rate rose to 7.6 percent in October, the highest since March 2007.
Traders increased bets the ECB will cut its 3.25 percent benchmark rate. The implied yield on Euribor futures contracts expiring in June declined to 2.445 percent today from 2.905 percent on Oct. 31.
Life Insurers, Pensions
Any gains in the yen may stall on speculation Japanese investors will buy more overseas assets.
Japanese investors bought 1.4 trillion yen ($15 billion) more overseas bonds, stocks and notes than they sold in October, according to Finance Ministry data. Net purchases by bank trust accounts, which typically manage pension fund money, rose to 1.1 trillion yen from 434 billion yen the previous month, the data showed. Life insurers had net purchases of 29 billion yen, the first outflow since May.
“Life insurers have strong seasonal patterns and tend to buy foreign assets in the April-June and October-December periods,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader. “Pensions tend to buy overseas equities when prices decline to keep asset allocation ratios unchanged. This could be one factor to limit yen appreciation.”
A Finance Ministry report today showed Japanese investors were net buyers of 356.2 billion yen of overseas securities in the week ended Nov. 22.
The U.S.’s Standard & Poor’s 500 Index has declined 8.4 percent this month, Europe’s Dow Jones Stoxx 600 Index has fallen 8.3 percent and the MSCI Asia-Pacific Index of regional shares excluding Japan has dropped 6.8 percent.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net
