BLBG:Dollar Falls Before Personal Income Report; Yuan Rises
The dollar headed for a quarterly decline against the euro before U.S. reports forecast to show personal income and business activity slowed, adding to signs the world’s biggest economy is losing momentum.
The U.S. currency headed for losses versus all except two of its 16 major counterparts over the past three months after the Federal Reserve said after its September meeting that it planned to buy $40 billion of mortgage-based securities a month to cap borrowing costs. The euro held gains from yesterday before Spain announces the results of bank sector stress tests. The yuan rose to the strongest versus the dollar since 1993.
“The Fed’s policy is a burden on the dollar,” said Lutz Karpowitz, a senior foreign-exchange strategist at Commerzbank AG in Frankfurt. “There is some speculation that the Fed might increase the monthly volume of purchases.”
The dollar depreciated 0.1 percent to $1.2921 per euro at 7:24 a.m. New York time, extending this quarter’s decline to 2 percent. The U.S. currency was little changed at 77.63 yen after falling to 77.44 yen, the weakest level since Sept. 13. The euro gained 0.1 percent to 100.30 yen.
Growth in U.S. personal incomes slowed to 0.2 percent last month from 0.3 percent in July, according to a Bloomberg survey before the Commerce Department releases the data at 8:30 a.m. New York time. U.S. business activity expanded in September at the slowest pace in four months, the Institute for Supply Management-Chicago Inc. will say today, according to another Bloomberg survey.
Orders for U.S. durable goods slumped 13.2 percent in August, the biggest decline since January 2009, government figures showed yesterday.
Dollar Index
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was little changed today at 79.55, having dropped 2.5 percent this quarter.
The Fed said on Sept. 13 that “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.” The U.S. central bank’s next decision will be announced on Oct. 24.
Spain will reveal results of a test conducted by consulting firm Oliver Wyman on 14 banking groups after the financial markets close today in Madrid.
“The result of the bank stress test should be a sideshow,” analysts including Hans Redeker, head of currency strategy at Morgan Stanley in London, wrote in a note to investors. “We remain risk-positive and expect risky currencies to rally.”
Spain Rating
The 17-nation common currency will fall to $1.23 by year- end, Karpowitz predicted, citing euro-negative factors including the prospect of Spain’s credit rating being reduced to non- investment grade, or junk status.
Moody’s Investors Service said last month it would probably extend its review of Spain’s credit rating, which started June 13, through the end of this month in order to get more information on support measures for the nation. Moody’s currently ranks the nation at Baa3, one step above junk.
The euro is within a cent of its average of $1.2988 over the past year.
“Downside for the euro is limited,” said Adam Cole, global head of foreign-exchange strategy at Royal Bank of Canada in London. “I don’t expect any big shocks” from the Spanish stress tests, he said.
China’s yuan strengthened on speculation the nation will step up efforts to halt a slowdown in the world’s second-largest economy. The monetary authority injected a record amount of funds into the financial system this week to ease a cash squeeze in the run up to a week-long holiday that starts Oct. 1.
“Funds are flowing back into the market as people bet China will soon act more aggressively to revive growth,” said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd. (23)
The yuan rose as much as 0.3 percent to 6.2835 per dollar. China’s currency, which has strengthened 1.1 percent this quarter, can trade as much as 1 percent on either side of the central bank’s daily fixing.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
