BLBG:Dollar Weakens as Summers Withdraws From Fed Race; Aussie Jumps
The dollar fell to a two-week low against the euro as the exit of former Treasury Secretary Lawrence Summers from the race to lead the Federal Reserve damped bets for an early end to expansionary monetary policy.
The U.S. currency weakened versus all except one of its 16 major peers as Summers’s decision fueled speculation the Fed will maintain stimulus that tends to weaken a nation’s foreign exchange. Australia’s dollar rose to a three-month high and the South African rand climbed to the strongest in five weeks. The Turkish lira jumped the most since May 2010 as the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons, boosting demand for higher-yielding assets.
“It’s the Summers thing mainly and then perhaps to some extent behind that as well there’s the agreement on Syria,” said Steve Barrow, head of Group-of-10 research at Standard Bank Plc in London. “The dollar will probably stay a bit softer against the riskier currencies. The emerging market currencies, or the riskier G-10 currencies of the Aussie, kiwi and Canadian dollar, are reasonably well set against the dollar.”
The dollar fell 0.5 percent to $1.3354 per euro as of 7:42 a.m. in New York after dropping to $1.3382, the weakest level since Aug. 28. The U.S. currency declined 0.5 percent to 98.92 yen after depreciating to 98.46 yen, the least since Sept. 2. The euro was little changed at 132.08 yen.
Summers, Yellen
Obama had mentioned Summers and Fed Vice Chairman Janet Yellen as candidates to lead the Fed after Ben S. Bernanke’s term as chairman expires Jan. 31, with policy makers preparing to reduce bond purchases, known as quantitative easing. Summers until yesterday was the president’s favorite.
Twenty U.S. senators, including 19 Democrats and one independent, signed a letter of support for Yellen in July.
“News that Summers had withdrawn from consideration for the Fed post has surprised the market as he had been widely tipped to take over from Bernanke,” said Imre Speizer, a market strategist at Westpac Banking Corp. (WBC) in Auckland. “Given that he was also perceived to be less QE-friendly than Yellen, the other main contender, the U.S. dollar has fallen.”
The dollar has depreciated 1.1 percent in the past week, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The yen declined 0.4 percent and the euro dropped 0.3 percent.
The Federal Open Market Committee will slow its monthly asset purchases to $75 billion from $85 billion at a two-day meeting starting tomorrow, according to a Bloomberg News survey of economists on Sept. 6.
‘Softer Dollar’
“The knee-jerk sell-off in the U.S. dollar is unlikely to result in a softer dollar trend being established, especially against the Swiss franc, yen, euro and pound,” BNP Paribas SA strategists led by global head of foreign-exchange strategy Steven Saywell in London wrote in a note to clients. “This week’s FOMC policy announcement on Wednesday will be the key event for the dollar, with a tapering tone to the meeting continuing to provide support.”
The Australian, New Zealand and Canadian dollars all rallied as investors sought higher-yielding assets.
The Aussie climbed 1.4 percent to 93.76 U.S. cents after rising to 93.94 cents, the strongest level since June 19. The kiwi rose 0.9 percent to 82.07 cents, and Canada’s currency gained 0.5 percent to C$1.0298 per U.S. dollar.
The rand rose 1.7 percent to 9.7615 per dollar after appreciating to 9.7496, the strongest level since Aug. 9.
“There is very strong global risk appetite after the announcement that Summers is no longer running,” said Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg. The rand may advance to 9.65 per dollar after breaching key technical levels, he said.
Lira Gains
Turkey’s lira extended gains from last week as U.S. Secretary of State John Kerry tries to build support for a plan to find and destroy Syria’s chemical weapons. He will meet with French President Francois Hollande and the foreign ministers from France and the U.K. after negotiating an accord with Russian Foreign Minister Sergei Lavrov.
Summers’s “withdrawal is positive for all emerging markets and an agreement on Syria is extra positive for Turkey,” Burcin Metin, the Istanbul-based head of currency trading at ING Bank AS, wrote in e-mailed comments yesterday.
The lira rose 1.9 percent to 1.9907 per dollar, the biggest daily advance since May 10, 2010.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net
