BLBG:Dollar Weakens On Stimulus Speculation; Australian Dollar Gains
The Dollar Index (DXY) declined for a fifth day as speculation the Federal Reserve and the Chinese government will take further steps to encourage economic growth damped demand for safer assets.
The Australian and New Zealand dollars led gains in higher- yielding currencies as European and Asian stocks advanced. The euro dropped for a second day versus the yen as borrowing costs increased at a Spanish debt sale. China’s Premier Wen Jiabao may decide to cut banks’ reserve requirements when the cabinet meets to discuss ways to spur growth. Fed Chairman Ben S. Bernanke yesterday kept open the possibility of additional stimulus.
“In Asian trading today there was talk about an imminent reserve requirement cut” in China, said Derek Halpenny, European head of global markets research at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “The two days of testimony from Bernanke has held out the hope of further steps from the Fed. That hope is definitely still in the market.”
The Dollar Index, which tracks the U.S. currency against those of six major trading partners, declined 0.3 percent to 82.784 at 7:44 a.m. New York time. The gauge earlier slipped to 82.734, the lowest level since July 5.
The U.S. currency fell 0.1 percent to $1.2301 per euro after falling to $1.2324, the weakest level since July 10. The greenback dropped 0.3 percent to 78.54 yen. The euro declined 0.2 percent to 96.64 yen.
Jobless Claims
U.S. initial jobless claims increased to 365,000 in the week ended July 14 from 350,000 in the previous period, according to the median estimate in a Bloomberg News survey before the Labor Department releases the figures today.
Bernanke said in testimony to the House Financial Services Committee yesterday in Washington that the central bank is “prepared to take further action as appropriate to promote a stronger economic recovery”
The Australian dollar rose for a fifth day, gaining 0.7 percent to $1.0438. The New Zealand currency gained 0.6 percent to 80.49 U.S. cents.
The Stoxx Europe 600 Index climbed 0.8 percent, and the MSCI Asia Pacific Index (MXAP) of shares added 1.6 percent.
The implied volatility of three-month options on Group of Seven currencies fell to 8.64 percent, according to a JPMorgan Chase & Co. measure, the lowest since November 2007. Lower volatility makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profits.
Euro Falls
The euro dropped against 13 of its 16 major counterparts as Spain’s 10-year government bond yield climbed above 7 percent following today’s debt sale. That’s the level that spurred Greece, Ireland and Portugal to seek bailouts.
Spain sold 2.98 billion euros of notes due from 2014 to 2019, in line with its maximum target. The Bank of Spain said demand for the two-year notes dropped to 1.9 times the amount sold from 4.26 last month. The yield increased to 5.204 percent from 4.335 percent at the previous sale on June 7.
“You’ve got Spanish 10-year yields at 7 percent and once again we’re at this psychological level,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “Once you get beyond there it tends to suggest investors really have taken a view that there has to be a bailout at some point. You’re going to see fairly consistent pressure on the euro for quite some time to come.”
The euro has declined 2.8 percent in the past month, the worst performance alongside the Swiss franc of the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar strengthened 0.6 percent, and the yen appreciated 1.2 percent.
Krona Gains
The Swedish krona appreciated for a third day against the dollar and euro, after yesterday climbing to the strongest since December 2000 versus the European currency.
“The most extreme positioning is in the Swedish krona right now,” Geoffrey Yu, a London-based currency strategist at UBS AG, said on Bloomberg Television’s “The Pulse” with Guy Johnson. “Sweden is very exposed to euro-zone growth. The last thing you want is growth collapsing for your biggest trading partner when you have a record high currency.”
The krona advanced 0.2 percent 8.5040 per euro, and rose 0.3 percent to 6.9107 versus the dollar.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net
