BS: Dollar Rises After Election as Haven Play; Euro Declines
The Dollar Index rose to a seven-week high as investors sought safety amid concern President Barack Obama will struggle to convince Congress to avert the so-called fiscal cliff after his historic re-election.
The euro fell to its weakest in two months versus the dollar after European Central Bank President Mario Draghi said the region’s crisis is affecting Germany. The U.S. currency weakened against the yen as Obama defeated Republican challenger Mitt Romney, who disagreed with current Federal Reserve policy of monetary stimulus. Obama now faces the fiscal cliff, $600 billion in tax increases and spending cuts set to be implemented in 2013, which may push the U.S. back into recession.
“What we’re seeing very clearly is a dose of risk aversion,” said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York. “Nothing says that the fiscal cliff is not going to get dealt with, but this is a domino effect stemming from equities, and one of the bricks in place is a stronger dollar.”
The dollar rose 0.4 percent to $1.2757 per euro at 9:17 a.m. in New York after earlier touching $1.2737, strongest since Sept. 7. The U.S. currency depreciated 0.6 percent to 79.91 yen after declining to 79.81, weakest since Nov. 1. The euro slipped 1 percent to 101.94 yen.
The Dollar Index, which tracks the greenback against the currencies of six major trading partners, rose 0.3 percent to 80.83 after touching 80.92, strongest since Sept. 7.
Obama Victory
The extra yield investors demand to hold two-year U.S. Treasuries instead of similar-maturity Japanese government bonds shrank to 16 basis points, the least since Oct. 16, curbing the allure of the dollar over the yen.
Obama prevailed over Romney narrowly in the popular vote, yet achieved an electoral sweep by carrying the crucial states of Colorado, Ohio and Virginia. With Florida too close to call, Obama had captured 303 Electoral College votes, well beyond the 270 needed to win the White House, compared with 206 for Romney.
Romney had said he disagreed with the Fed’s measures to stimulate the economy and would replace Chairman Ben S. Bernanke at the end of the latter’s term in January 2014. U.S. policy makers unveiled a plan in September to buy $40 billion of mortgage-backed securities every month in a third round of so- called quantitative easing after $2.3 trillion purchases of bonds from December 2008 and June 2011.
That compares to the Bank of Japan (8301), which added 11 trillion yen ($137 billion) to its monetary stimulus last week, to bolster growth through lower borrowing costs.
‘Continued Easing’
“Obama’s re-election is likely to boost expectations of continued easing by the Fed,” said Junya Tanase, chief currency strategist at JPMorgan Chase & Co. in Tokyo. “If it leads to lower U.S. yields and higher stock prices, the bias will be for the dollar-yen to fall.”
The euro fell against all its major counterparts except Norway’s krone as Greek lawmakers prepared to vote on austerity measures needed to keep its international bailout on track.
The 238 pages of additional austerity plans, ranging from raising the retirement age to eliminating holiday payments for pensioners, will be debated by the Greek parliament today with a roll-call vote expected. Approval is the first of the parliamentary votes required by Nov. 12 to unlock a 31 billion- euro portion of international aid.
Euro Falls
The euro declined 1.5 percent over the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar rose 0.9 percent and the yen fell 0.9 percent.
“The weak overall economic situation, combined with slow money growth, means that the risks of inflation are currently very low over the medium term,” ECB President Draghi said in a speech in Frankfurt. “Our interventions will not change this outlook.”
Switzerland’s franc rose 0.2 percent to 1.20655 per euro and fell 0.3 percent to 94.56 centimes per dollar after the central bank said its foreign-currency reserves declined last month for the first time since February.
Holdings dropped to 424.4 billion francs ($451 billion) at the end of October from a revised 429.5 billion francs the previous month, the Swiss National Bank said. Economists surveyed by Bloomberg News forecast 432 billion francs.
SNB President Thomas Jordan pledged to enforce a franc ceiling of 1.20 per euro introduced in September 2011 “with the utmost determination” even as the euro area’s fiscal crisis prompted policy makers to pile up record currency holdings.
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
