BLBG: Dollar Rises From 7-Week Low as Retail Drop Spurs Safety Demand
The dollar rose from a seven-week low versus the euro after an unexpected drop in U.S. retail sales spurred demand for the greenback as a haven.
The euro declined for a third day versus the yen after Marko Kranjec, a European Central Bank council member, said the bank is likely to increase its asset-purchase program and may broaden its scope beyond covered bonds. The pound declined versus the euro and dollar after the Bank of England predicted a “protracted recovery.”
“It’s certainly a reality check for sure,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “All the news favors the dollar bulls.”
The dollar advanced 0.4 percent to $1.3597 per euro at 9:20 a.m. in New York, from $1.3648 yesterday. It earlier slid to $1.3722, the weakest level since March 23. The yen strengthened 0.4 percent to 96.05 against the dollar from 96.45. The yen appreciated 0.7 percent to 130.66 per euro from 131.63.
U.S. retail sales decreased 0.4 percent last month after dropping a revised 1.3 percent in March, the Commerce Department reported in Washington. The median forecast of 68 economists surveyed by Bloomberg was for no change.
The pound weakened 0.7 percent to 89.99 pence per euro and dropped 0.9 percent to $1.5127 as the Bank of England’s forecasts published today in London indicated the U.K.’s gross domestic product will contract on an annual basis for the rest of this year before growth resumes in 2010. Inflation will slow to as low as 0.4 percent this year, the central bank added.
BOE’s King
“The risks are weighted toward a relatively slow and protracted recovery,” BOE Governor Mervyn King said in London today. There are “pretty solid reasons” to question whether a recovery can be sustained and “inflation is more likely to be below the target than above,” he added.
Production in the euro region plunged 20.2 percent in March from a year earlier, the biggest drop since the data series started in 1986, according to the European Union’s statistics office in Luxembourg.
Europe’s Dow Jones Stoxx 600 Index of equities slid 2.3 percent, the third consecutive daily decline. Futures on the Standard & Poor’s 500 Index dropped 1.8 percent, boosting demand for the safest assets.
King’s comments were made even as confidence in the global economy rose to the highest level in 19 months as central bankers pointed to signs of a recovery and stress tests on U.S. banks reassured investors, a Bloomberg survey of users showed.
Confidence Index
The Bloomberg Professional Global Confidence Index climbed to 38.72 in May from 21.2 in April, the biggest increase since the survey began in November 2007. Because the number is below 50, it means pessimists still outnumber optimists.
Individual investors in Japan increased bets to the most in six months that the yen will weaken as the economy stabilizes, jumping back into a trade that was all but wiped out last year.
Businessmen, housewives and pensioners held 153,326 margin contracts at the end of last month that will make money if the yen declines against currencies ranging from the euro to the Australian and New Zealand dollars, according to the Tokyo Financial Exchange. All told, they may have as much as $125 billion in yen short positions, RBC Capital Markets strategists said. A short is a bet that a currency or security will fall.
“Investors believe the worst of the global recession is over and higher-yielding currencies are bottoming out,” said Yoshisada Ishide, who oversees $1.8 billion as a Tokyo-based fund manager at Daiwa SB Investments Ltd., a unit of Japan’s second-biggest investment bank.
