BLBG: Dollar Rises to Three-Week High Against Euro on U.S. Stimulus
The dollar rose to a three-week high against the euro and advanced versus the yen on speculation President-elect Barack Obama’s fiscal stimulus will help the U.S. economy recover from recession.
The greenback also gained versus the Swiss franc and the Danish krone as a transition official said Obama’s package will include hundreds of billions of dollars of tax breaks. The pound appreciated against the euro, dimming the possibility it will slide to parity, on bets the U.K. government will guarantee asset-backed securities to revive bank lending.
“I do expect the euro-dollar to fall further,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. “It’s really a question of where you will get most of the return for your money. It does seem that we’ll see stabilization in the economic downturn first in the U.S.”
The dollar gained 2.2 percent to $1.3617 per euro at 10:15 a.m. in New York, from $1.3921 on Jan. 2. It touched $1.3554, the strongest level since Dec. 15. The U.S. currency will rise to $1.30 in six months, according to Galy. The dollar gained 1.2 percent to 92.97 yen from 91.83, after touching 93.57, the highest level since Dec. 8. The euro fell 0.8 percent to 126.73 yen from 127.76.
Sterling strengthened beyond 94 pence per euro for the first time since Dec. 23, gaining 2.2 percent to 93.68 pence. The pound slid to 98.03 on Dec. 30, the weakest since the European currency’s 1999 debut. The pound traded at $1.4534.
BOE’s King
Bank of England Governor Mervyn King’s first course of action this year will probably be to expand the 200 billion- pound ($290 billion) program that allows banks to swap illiquid securities for government debt, according to economists.
The euro slid today against 14 of the 16 most actively traded currencies tracked by Bloomberg on speculation the European Central Bank will make further cuts in its 2.5 percent main refinancing rate. The 16-nation currency declined 4.2 percent against the dollar in 2008.
“There’s a strong view in the market that the euro will suffer into 2009,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank in London. “The ECB is behind the curve on rate cuts and will be forced to play catch-up. It will pay the price for concern over non-existent inflation.”
The euro may decline by 10 percent against a basket of European currencies including the pound, Norwegian krone and the Swedish krona, according to Goldman Sachs Group Inc.
‘Less Severe’
“Forced euro buying is likely to abate as tension in credit markets becomes less severe,” currency strategists at Goldman Sachs led by New York-based Jens Nordvig wrote in a report today.
The yen fell 2.3 percent to 6.83 against Mexico’s peso today and 1.1 percent to 135.08 versus the pound on speculation investors will resume carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s 0.1 percent target lending rate compares with 8.25 percent in Mexico and 2 percent in the U.K.
Japan’s currency rose 23 percent against the dollar in 2008 and hit a 13-year high against the dollar last month, cutting into repatriated earnings and undermining the competitiveness of the nation’s exports.
The Bank of Japan may consider measures including monetary policy to counter the rising yen as the economy faces severe conditions in 2009, Governor Masaaki Shirakawa told public broadcaster NHK yesterday.
Obama, who takes office on Jan. 20, plans to seek congressional approval in coming weeks for an economic stimulus plan that may total $775 billion, according to a transition official and Democratic aides. Tax cuts may account for 40 percent of the package, they said.
‘Very Bullish’
“I am very bullish on the dollar throughout 2009,” said Matt Esteve, foreign-exchange trader at currency-trading firm Tempus Consulting Inc. in Washington, in an interview on Bloomberg Television. “I think it’s because the U.S. economy is best set for recovery in 2009.” The dollar will advance to $1.10 per euro and 110 yen by year-end, according to Esteve.
The greenback gained 2.1 percent to 5.4621 Danish krone and 1.9 percent to 1.1015 Swiss franc today.
Policy makers should enact “substantial” fiscal stimulus to stop the U.S. economy from deteriorating further, Federal Reserve Bank of San Francisco President Janet Yellen said yesterday.
Last month, the U.S. central bank reduced the target for the fed funds rate, which banks charge one another for overnight loans, to a range of zero to 0.25 percent for the first time.
Outlook for Dollar
The dollar, yen and Swiss franc may weaken this year against 2008’s biggest losers in the currency markets as the global economy starts to recover, according to the largest foreign-exchange strategists and investors.
The winners will be the Brazilian real, Indonesian rupiah and Polish zloty as investors return to higher-yielding assets, according to Bloomberg News surveys. The dollar may strengthen versus the euro and the yen, while dropping against the pound.
“The dollar still faces pretty significant challenges,” said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., Canada’s second-largest bank.
