BLBG:Dollar Weakens as Stock Gains Reduce Demand for Safety; Aussie Strengthens
The dollar fell against the euro, snapping a six-day rally, as stock gains and the Swiss National Bank’s decision to cap the franc’s rate yesterday damped demand for safer assets.
The euro strengthened versus the greenback and the pound as Germany’s top court rejected constitutional challenges to the nation’s participation in the region’s rescue funds. The Dollar Index declined before the Federal Reserve releases its so-called Beige Book today that provides an assessment of economic conditions in its 12 U.S. districts. Australia’s dollar rose after a report showed the economy grew more than analysts forecast.
“Markets have gone a little bit more positive on risk after the relentless gloom of the past few days,” said Adam Cole, head of currency strategy in London at Royal Bank of Canada. “That generally more positive tone for risk is leaving the dollar looking a bit softer.”
The dollar weakened 0.4 percent to $1.4054 per euro at 6:51 a.m. in New York, after strengthening 3.7 percent in the previous six days. The U.S. currency dropped 0.6 percent to 77.20 yen, and declined 0.5 percent to 85.80 Swiss centimes. The yen gained 0.3 percent to 108.44 per euro.
The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, slid 0.4 percent to 75.625, after earlier posting the biggest intraday drop since Aug. 15.
Stocks Rise
The U.S. currency also depreciated amid speculation Fed Chairman Ben S. Bernanke will signal more monetary easing in a speech tomorrow. The Fed’s Open Market Committee will gather for a two-day meeting on Sept. 20.
“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 MSCI Asia Pacific Index of shares rose 2.3 percent, and the Stoxx Europe 600 Index advanced 1.9 percent. Futures on the Standard & Poor’s 500 Index gained 1 percent.
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. It was little changed at 1.2054 per euro today.
New Havens
“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. “Obviously the allure of the Swiss franc as a safe haven has been damaged by the SNB’s actions, so the likelihood is some of those flows will be diverted to the dollar and the yen, and also we’re starting to see a search for alternative safe havens such as the Swedish krona and Norwegian krone.”
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 0.9 percent to 8.9670 per euro and strengthened 1.3 percent against the dollar to 6.3931.
Germany’s Federal Constitutional Court in Karlsruhe today threw out suits targeting the nation’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 approved last year to halt the spread of Greece’s debt crisis.
Australian GDP
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 3.2 percent in the past three months, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
The so-called Aussie strengthened against 15 of 16 major counterparts tracked by Bloomberg after a report today showed 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.”
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.
“It is good to be in a position to be able to maintain steady settings” in periods of financial-market anxiety, Stevens said in Perth today. The central bank yesterday kept its benchmark rate 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
