BLBG:Dollar Advances As Global Slump Spurs Safety Demand
The dollar advanced against most of its 16 major counterparts on signs Europe’s debt crisis is weighing on economies across the globe, boosting demand for the relative safety of the U.S. currency.
The greenback maintained four days of gains against the euro before reports tomorrow forecast to show gross domestic product grew at a slower pace in Germany and contracted in France. Data today showed Japan’s economy expanded less than analysts estimated as exports and consumer spending weakened. Demand for the Australian and New Zealand dollars was tempered as Asian stocks failed to extend a weekly advance that was the biggest since January.
“Japan’s GDP highlighted the fragility of the global economic situation,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. (WBC) in Singapore. “Tomorrow’s GDP from the euro zone and the key European economies is likely to highlight a similar situation. The risks are that you see a little bit of U.S. dollar outperformance.”
The dollar traded at $1.2282 per euro as of 7:05 a.m. in London from $1.2289 last week, when it climbed 0.8 percent. It was little changed at 78.30 yen. The euro was at 96.16 yen from 96.17 last week.
The euro-area economy probably shrank 0.2 percent in the second quarter from the previous three-month period, according to the median estimate of analysts surveyed by Bloomberg before tomorrow’s data. France contracted by 0.1 percent, while German growth slowed to 0.2 percent, separate polls showed.
Japan’s Growth
The pace of economic growth in Japan cooled to an annualized 1.4 percent in the second quarter from a revised 5.5 percent in the first three months of the year, the Cabinet Office said in Tokyo today. The median estimate of 24 economists surveyed by Bloomberg was for a 2.3 percent gain.
The dollar has risen 7.1 percent in the past year, according to Bloomberg Correlation-Weighted Indexes, the second- best performance among the 10 currencies tracked by the gauge. The yen rose 2.9 percent and the euro lost 8.9 percent.
The U.S. currency tends to strengthen during periods of financial stress because it is the world’s reserve currency.
“The data in Europe is certainly weak,” said Mike Jones, a currency strategist in Wellington at Bank of New Zealand. “In the short term, we could see a little more euro downside.”
The euro failed to rally after its biggest weekly loss in more than a month as European leaders struggle to find a resolution to fiscal turmoil in the region. The shared currency declined 0.8 percent in the week ended Aug. 10, the most since July 6.
Investor Confidence
Bond purchases by the European Central Bank won’t solve the difficulties of Spain and Italy in maintaining investor confidence, ECB Governing Council member Luc Coene said in an interview with Belgian newspapers De Tijd and L’Echo published Aug. 11.
Spain’s 10-year yield climbed to a euro-era record of 7.75 percent on July 25, while the rate on similar-maturity Italian bonds rose to a six-month high on the same day. Italy is scheduled to sell 8 billion euros ($9.8 billion) in bills today.
Demand for the dollar was tempered before reports this week that may show improving retail sales and industrial production in the U.S. economy, the world’s largest.
Sales probably increased by 0.3 percent last month after a 0.5 percent decline in June, according to the median estimate of economists in a Bloomberg News survey before the Commerce Department releases the figures tomorrow. Output at U.S. factories, mines and utilities may have risen 0.5 percent in July after a 0.4 percent gain the prior period, economists predict a Federal Reserve report will show on Aug. 15.
Australia, New Zealand
The Australian and New Zealand dollars slid versus their major peers as signs the global economic recovery is struggling curbed appetite for higher-yielding assets. The so-called Aussie lost 0.3 percent to $1.0551, while its Trans-Tasman counterpart declined 0.3 percent to 81.13 U.S. cents.
The MSCI Asia Pacific Index (MXAP) of shares fell 0.2 percent after jumping 3 percent last week, the most since the period ended Jan. 20.
The implied volatility of three-month options on Group of Seven currencies declined, according to a JPMorgan Chase & Co. measure. The gauge dropped to 8.44, a level unseen since July 20, when it touched the lowest level 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.
To contact the reporters on this story: Sharon Chen in Singapore at schen462@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
