BLBG: Dollar, Yen Gain as Euro, Pound Weaken on Deepening Recession
The dollar and yen rose as traders fled the euro and pound on evidence the recession is deepening in Europe.
The 16-nation currency fell the most against the dollar in more than a month after Europe’s statistics office said industrial orders in the region plunged in January. The yen also gained on speculation Japanese companies brought home overseas earnings before the end of the nation’s fiscal year.
“You’ll still see people coming to the dollar for support,” said Brian Kim, a currency strategist in Stamford, Connecticut, at UBS AG, the world’s second-largest currency trader. “The data’s been pretty bad.”
The euro fell as much as 1.7 percent to $1.3294, the biggest intraday drop since Feb. 17, before trading at $1.3325 at 9:03 a.m. in New York. Europe’s currency extended its decrease this week to 1.9 percent. The yen lost 2.4 percent to 130.38 per euro from 133.52. The dollar weakened 0.9 percent to 97.88 yen from 98.71.
The pound fell versus the dollar after a report showed Britain’s gross domestic product declined in the fourth quarter by a greater-than-forecast 1.6 percent. The prior measurement as well as the median forecast of 27 economists surveyed by Bloomberg was 1.5 percent.
“The market was somewhat taken aback by the downward revision in the U.K. growth numbers,” said Derek Halpenny, European head of global currency research at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “If anything, people were expecting an upward revision. That certainly added to the turnaround in the dollar.”
Britain’s Pound
Sterling weakened 0.9 percent to $1.4321 and increased 0.6 percent to 93.03 pence per euro.
Industrial orders in the euro area declined 34 percent in January from the year-earlier month, when they fell 24 percent, the European Union statistics office in Luxembourg said today. The January drop was the biggest since the data series started in 1996. From the prior month, January orders fell 3.4 percent.
“There are plenty of event risks on the horizon that can dent investor sentiment,” said Ian Stannard, a currency strategist at BNP Paribas SA in London. “These have the potential to impact on the dollar.”
The dollar strengthened against most of its peers as U.S. stock-index futures slid, increasing demand for safety. The Dow Jones Stoxx 600, a benchmark for Europe, fell 0.6 percent after a six-day rally. Futures on the Standard & Poor’s 500 Index lost 0.9 percent.
Dollar Index
The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, climbed 1 percent today to 85. It fell to 82.63 on March 19, the lowest level since Jan. 9.
Citigroup Inc. said it ended a bet that the euro will strengthen against the dollar as pressure mounted on the European Central Bank to follow the Federal Reserve in buying bonds to lower interest rates, a policy known as quantitative easing.
“We are taking off our long euro-dollar trade on the lack of follow-through from the introduction of quantitative easing in the U.S. and the pressure on the ECB to move in the same direction,” analysts led by Jim McCormick, Citigroup’s London- based global head of foreign-exchange and local-markets strategy, wrote in a report today. “We believe that dollar weakness will remain a dominant theme but see better opportunities in other places.”
EU Budget Rules
German Finance Minister Peer Steinbrueck said the euro could be hurt if member states stray from the 27-nation European Union’s budget rules as they combat the economic crisis.
Calling for an overhaul of a national law to limit debt spending, Steinbrueck told lawmakers in Berlin today that Germany has a “massive” interest in the EU’s Stability and Growth Pact, which limits debt spending to 3 percent of gross domestic product.
Demand for the yen was boosted on speculation Japanese companies and investors will repatriate earnings generated outside the nation before the fiscal year ends on March 31.
“It’s quarterly and fiscal year-end, so there’s talk that Japanese life insurers and exporters will need to buy the yen,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is a last-minute kind of thing.”
