BLBG: Dollar Weakens Versus Euro on Speculation Retail Sales Declined
The dollar declined from a five-week high against the euro on speculation reports today and tomorrow will show U.S. retail sales and manufacturing fell as the recession in the world’s largest economy deepened.
The dollar also slid for the first time in four days versus the British pound after Federal Reserve Chairman Ben S. Bernanke said fiscal policy alone won’t lead to a lasting economic recovery, signaling the government may need to do more to stimulate growth. The yen fell against 15 of 16 major currencies monitored by Bloomberg on speculation a rebound in Asian stocks and commodity prices will spur demand for high-yielding assets.
“The dollar is giving back some gains after a recent rally,” said Ian Stannard, currency strategist in London at BNP Paribas SA, France’s biggest lender. “Comments from Fed policy makers and bearish views on the data this week may have triggered the selling. I see the correction as short-lived. Longer term, the steps taken by the U.S. will help the dollar.”
The dollar weakened to $1.3218 per euro as of 7:05 a.m. in New York, from $1.3182 yesterday, when it touched $1.3141, the strongest since Dec. 11. The dollar bought 89.47 yen from 89.38 yen. The euro rose to 118.28 yen from 117.81 yen. The British pound rose to $1.4544 from $1.4501. Stannard said the greenback may decline to $1.3350 per euro today.
“Strong measures” are needed to stabilize and strengthen the financial system, Bernanke said in a speech yesterday in London. “More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.”
Dollar Index
The Dollar Index traded on ICE futures, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and the Swedish krona, fell 0.6 percent to 83.65 from yesterday, when it touched 84.446, the strongest level since Dec. 11.
The index has gained 3.4 percent this year, after losing 6 percent in December, when the Fed lowered its benchmark interest rates to a range between zero and 0.25 percent, a record low.
U.S. retail sales fell for a sixth month in December, extending the longest run of declines since records began in 1992, according to a Bloomberg News survey. The Commerce Department will release the data at 8:30 a.m. today in Washington.
Fed surveys tomorrow from the New York and Philadelphia regions will show manufacturing contracted this month, separate Bloomberg surveys show.
‘Worsen Significantly’
“We expect U.S. retail sales to worsen significantly,” Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. “There’s a high chance that the dollar will face renewed selling pressure versus the yen.”
The Australian dollar advanced to 67.80 U.S. cents from 66.46 cents yesterday in New York and gained to 60.83 yen from 59.40. The New Zealand dollar rose to 55.72 U.S. cents from 55.34 cents. The kiwi, as the currency is known, also rose to 49.98 yen from 49.46. The MSCI Asia-Pacific Index of regional shares advanced 1 percent, ending a four-day losing streak, as gains in oil prices boosted energy producers.
Benchmark interest rates are 4.25 percent in Australia, 5 percent in New Zealand and 0.1 percent in Japan.
Gains in the euro may be limited as European industrial production fell the most in 18 years in November, adding to speculation the European Central Bank will cut interest rates at a meeting tomorrow.
ECB Outlook
Output in the euro zone dropped 7.7 percent from a year earlier, the European Union’s statistics office in Luxembourg said today. It was the biggest annual drop since December 1990 and more than the 6.1 percent decline expected by economists surveyed in a Bloomberg survey.
A Credit Suisse Group AG gauge of probability based on overnight index swaps indicated the ECB will lower its 2.5 percent main rate by at least half a percentage point tomorrow, with 7 percent odds that the cut will be deeper. The median forecast of economists surveyed by Bloomberg is for a 0.5 percentage-point reduction.
The ECB has cut rates by 1.5 percentage points since the beginning of last year, while the Fed slashed its target 4 percentage points. The Bank of England lowered its main rate 4 full percentage points in 12 months, pushing it to 1.5 percent.
Technical Analysis
“There are a lot of orders to sell the euro,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed bank. “Interest-rate cuts are likely and that is weighing on the euro. There’s not much good economic news coming out of Europe.”
The euro may decline to $1.3100 today, he said.
The common European currency may decline to $1.2940 this week according to the analysis of trading patterns, said Kengo Suzuki, currency strategist at Shinko Securities Co. in Tokyo. Support at $1.2940 is near the lower edge of a cloud formation on the euro’s daily ichimoku chart, he said. The width between the currency’s upper and lower Bollinger bands is expanding, showing the euro is likely to fall at the same pace as the lower band, he said.
Europe’s currency has fallen 5.9 percent against the yen, 5 percent against the dollar and 4.9 percent against the pound this year as reports showed services and manufacturing shrank in December by the most in at least a decade and inflation fell below the ECB’s ceiling of 2 percent for the first time since August 2007.
