BLBG; Dollar, Yen Gain as Retail Sales Drop Boosts Demand for Haven
The dollar and the yen advanced to one-month highs against the euro as a drop in U.S. retail sales raised concern that the global recession is deepening, increasing the haven appeal of the currencies.
The euro fell for a fourth day against the dollar before European Central Bank policy makers are forecast to cut interest rates by 0.5 percentage points tomorrow. The Russian ruble dropped to lowest in six years against the dollar after the central bank devalued the currency for the third time in four days and the government’s dispute with Ukraine over gas shipments remained unresolved.
“Today’s retail sales numbers highlight the theme that when the U.S. sneezes, the rest of the world catches a cold,” said Robert Blake, a senior currency strategist in Boston at State Street Global Markets LLC, which has $15.3 trillion in assets under custody. “The bad news is already priced in the U.S. economy, but in other economies around the world, particularly Europe, there’s more bad news to come.”
The dollar advanced 0.4 percent to $1.3128 at 9:44 a.m. in New York, from $1.3182 yesterday. It earlier touched $1.3093, the strongest since Dec. 11. The dollar bought 89.13 yen, down from 89.38 yen. The yen gained 0.8 percent to 116.87 per euro after touching 116.74, the strongest level since Dec.5.
Russia’s ruble fell to as low as 31.756 per dollar, the weakest since February 2003. The ruble has dropped 26 percent since August. Bank Rossii, which manages the ruble against a target dollar-euro basket to protect exporters from currency fluctuations, expanded the trading range today, a bank official said, without providing details.
Risk Aversion
The Japanese currency gained as much as 2.8 percent to 48.05 yen versus the New Zealand dollar and advanced 2.8 percent against the Mexican peso as investors sold higher-yielding assets and bought back low-cost loans in Japanese currency. Japan’s 0.1 percent benchmark compares with 8.25 percent in Mexico and 5 percent in New Zealand.
The yen has advanced against all major currencies this year, rising 8.4 percent versus the New Zealand’s dollar and 7.8 percent against the euro.
The Dollar Index traded on ICE futures, which tracks the greenback versus six major U.S. trading partners, touched 84.64, the strongest level since Dec. 11.
U.S. retailers fell 2.7 percent in December, the sixth consecutive drop, extended the longest string of declines on record, the Commerce Department said. That was more than twice as much as forecast. Purchases excluding automobiles slumped 3.1 percent, the most since records began in 1992.
Financial Institutions
The Dollar Index has gained 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.
The euro began to weaken after Deutsche Bank AG reported a record loss of about 4.8 billion euros ($6.3 billion) in the fourth quarter after the worst financial crisis since the Great Depression pummeled debt and equity trading. HSBC Holdings Plc tumbled 7.9 percent as Morgan Stanley said Europe’s largest bank by market value may have to raise as much as $30 billion and halve its dividend.
“The market is focusing on banks again,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “The situation in Europe is a concern. The euro may fall further.”
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 Federal Reserve 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.
