BLBG:Dollar Falls Amid Easing Speculation Before U.S. CPI Data
The dollar slid against most of its 16 major counterparts before U.S. data that economists said will show consumer prices fell, strengthening the case for the Federal Reserve to take more steps to bolster the economy.
The euro’s advance against the U.S. currency was tempered after Moody’s Investors Service yesterday lowered the credit ratings of Spain and Cyprus, and before Greek elections on June 17. New Zealand’s dollar strengthened against all of its major peers after that nation’s central bank left interest rates unchanged. The Fed is scheduled to hold a two-day policy meeting starting June 19.
“The dollar is susceptible to weakening because expectations for additional easing are rising ahead of the policy meeting next week,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency margin company. “A decline in employment and the economy is the biggest concern for the Fed.”
The dollar fell 0.2 percent to $1.2580 per euro at 8:47 a.m. London time. The greenback weakened 0.1 percent to 79.41 yen. The 17-nation euro was little changed at 99.94 yen following a 0.7 percent advance in the previous two days. The common currency touched 95.60 yen on June 1, the lowest level since November 2000.
The U.S. consumer-price index probably fell 0.2 percent in May from a month earlier, the biggest drop since December 2008, the median estimate of economists in a Bloomberg News survey showed. The Labor Department will release the figures today.
European Risks
“The situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely,” Fed Chairman Ben S. Bernanke told lawmakers on June 7. “As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate.”
The Fed bought $2.3 trillion of bonds in two rounds of so- called quantitative easing from 2008 through 2011 to stimulate growth through lower borrowing costs.
Hedge funds and other large speculators increased their bets on a drop in the euro against the dollar, known as short positions, to a record high of 214,418 last week, figures released June 8 by the Washington-based Commodity Futures Trading Commission showed.
Moody’s yesterday cut Spain’s rating three steps to Baa3, one level above junk, citing the nation’s increased debt burden, weakening economy and limited access to capital markets. The ratings firm also lowered Cyprus’s bond rating to Ba3 from Ba1, attributing the downgrade to the material increase in the likelihood of a Greek exit from the euro area, and the resulting increase in the probable amount of support that the government may have to extend to Cypriot banks.
Greek Vote
Greeks will vote again this weekend after a May election failed to produce a coalition government. In the final polls before the vote, one, by Kapa SA, showed the pro-bailout New Democracy party retained its lead over Syriza, with the support of 26.1 percent of 1,012 Greeks surveyed. Anti-bailout party Syriza had 23.6 percent.
“Traders are covering their short positions on the euro because such positions have substantially accumulated,” said Noriaki Murao, New York-based managing director of the marketing group at the Bank of Tokyo-Mitsubishi UFJ Ltd. “Despite the rebound in the euro, I don’t think anything has gotten better in the European situation.”
Italy will hold its first bond auction today since Spain’s 100 billion-euro bank-rescue request drove up yields, as the government seeks to convince investors that the country won’t be the next to need aid. The Treasury will sell as much as 4.5 billion euros of three-, seven- and eight-year bonds.
‘Fiscal Discipline’
Italian Prime Minister Mario Monti said yesterday in Berlin growth policies are needed for “fiscal discipline to be sustainable in the long term.”
“People are concerned about contagion from Greece to Spain, from Spain to Italy,” said FX Prime’s Ueda. “The euro can’t be bought, not only because of the sovereign-debt problems but also because of its weak fundamentals.”
The euro has weakened 1.4 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. Australia’s dollar was the worst performer with a 2.9 percent decline during the period, followed by a 2 percent slide for New Zealand’s currency.
The Reserve Bank of New Zealand kept the official cash rate unchanged at 2.5 percent today. There was a 20 percent chance of a rate cut, interest-rate swaps data compiled by Bloomberg showed.
Economic Stimulus
“Recent weakness in the kiwi has allowed the RBNZ to leave interest rates on hold because we’re getting, to a certain extent, stimulus to the economy as a consequence of that,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “That’s certainly supportive of the New Zealand dollar.”
The South Pacific nation’s currency, known as the kiwi, advanced 0.5 percent to 77.72 U.S. cents.
The dollar may extend a rally against the yen after climbing on June 6 to cross the downtrend line from the March 21 high, according analysts at Citigroup Inc. said, citing a chart pattern. Initial resistance is between 79.80 and 79.83, technical analysts Tom Fitzpatrick and Shyam Devani wrote in a research note yesterday. Resistance refers to an area on a chart where technical analysts anticipate orders to sell an asset may be clustered.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
