BLBG:Dollar Weakens as Stocks Rally; Euro Advances After German Court Ruling
The dollar fell against the euro, snapping a six-day advance, as stock gains and the Swiss National Bank’s decision to set a currency ceiling yesterday damped demand for the world’s main reserve currency.
The euro extended gains after Germany’s top court rejected constitutional challenges to the nation’s participation in the region’s rescue funds. The greenback weakened versus all its major peers before a speech by Chicago Federal Reserve President Charles Evans, who said last month he favored more U.S. monetary stimulus. Australia’s dollar rose after a report showed the economy grew more than analysts forecast.
“Following yesterday’s SNB decision, it does seem to have temporarily at least encouraged a period of renewed risk taking in financial markets,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London.
The dollar fell 0.8 percent to $1.4107 per euro as of 9:13 a.m. in London, after rising to $1.3972 yesterday, the strongest since July 13. The U.S. currency dropped 0.6 percent to 77.17 yen. The yen was little changed at 108.80 per euro. The franc rose 0.8 percent to 85.55 centimes per dollar after sliding 8.7 percent yesterday.
The MSCI Asia Pacific Index of shares advanced 2.3 percent, and the Stoxx Europe 600 Index rose 1 percent.
The Chicago Fed’s Evans, a voting member of the central bank’s policy-making committee, will speak in London. Evans urged easier monetary policy and said he would “favor more accommodation” in a CNBC television interview on Aug. 30.
Beige Book
The Fed will today release its Beige Book assessment of economic conditions in each of its 12 U.S. districts. The Federal Open Market Committee will gather for a two-day meeting on Sept. 20 that was originally scheduled to last one day.
“Because people are wondering if the U.S. will be OK in the medium to long term, they want to decrease dollar- denominated assets,” said Makoto Noji, a senior debt and currency strategist at SMBC Nikko Securities Inc. in Tokyo. “The U.S. will have to conduct monetary easing to bolster the economy, so these factors will drive the dollar down.”
The Swiss central bank said yesterday “it will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs” and that it’s “aiming for a substantial and sustained weakening of the franc.” The Swiss currency slid a record 8.7 percent against the euro after the announcement.
The franc was little changed at 1.2060 per euro, after sliding 8.1 percent yesterday.
Krona Gains
Sweden’s krona appreciated against the euro and the dollar after the central bank said it only “slightly” cut its guidance for future increases in interest rates.
The krona appreciated 0.7 percent to 8.9882 per euro and strengthened 1.3 percent against the dollar to 6.3808.
Today’s court ruling in Germany targets the country’s share of the 110 billion euros in loans for Greece from euro-region governments and the International Monetary Fund, as well as a separate 750 billion-euro rescue fund that sought to halt the spread of Greece’s debt crisis.
Merkel pledged last week to consult lawmakers as much as they felt necessary as her Cabinet agreed on a reworked European Financial Stability Facility that will raise Germany’s share of EFSF loan guarantees to 211 billion euros.
The euro has depreciated 3.1 percent in the past three months, the second-worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
Australian Dollar
The Australian dollar strengthened against 14 of its 16 major counterparts after gross domestic product growth quickened and Reserve Bank of Australia Governor Glenn Stevens signaled a willingness to keep interest rates unchanged.
“The Aussie is holding its gains because the RBA was quite upbeat about the outlook for Australia,” said Annette Beacher, head of Asia-Pacific research at TD Securities. “That has been followed up pretty quickly by strong GDP.”
Australia’s GDP expanded 1.2 percent in the second quarter from the previous three months. That was above the 1 percent median estimate in a Bloomberg News survey of economists.
“It is good to be in a position to be able to maintain steady settings” during periods of increased financial market anxiety, Stevens said in Perth today. The central bank yesterday kept its benchmark rate unchanged at a developed-world high of 4.75 percent.
Australia’s currency rose 1.2 percent to $1.0609, and strengthened 0.6 percent to 81.89 yen.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
