BLBG: Dollar Falls as Efforts to Spur Growth Reduce Haven Demand
The dollar fell against most of the other major currencies as efforts to revive global economic growth reduced demand for the greenback as a haven.
The U.S. currency weakened versus the euro as the Federal Reserve extended its emergency-lending programs and foreign currency-swap lines by six months. Australia’s dollar was the biggest gainer versus the greenback after the Reserve Bank cut the benchmark lending rate and the government said it will spend A$42 billion ($26.5 billion) to sustain the economy.
“The market is keen to put risk trade back on,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “That helped the dollar underperform. Given that the scarcity of the dollar was a modest positive for the currency, the Fed measures suggest renewed pressure.”
The dollar declined 1.4 percent to $1.3023 per euro at 11:37 a.m. in New York, from $1.2843 yesterday, when it reached $1.2706, the strongest level since Dec. 5. The dollar fell 0.2 percent to 89.24 yen from 89.45. The yen slid 1.2 percent to 116.26 per euro from 114.89 yesterday.
The U.S. currency fell 1.3 percent to 6.9422 Norwegian kroner and 1.4 percent to 1.1447 Swiss francs as the Fed extended programs including the Commercial Paper Funding Facility and currency swaps through Oct. 30. The programs had been previously authorized through the end of April.
Japan’s currency fell versus the euro for the first time in four days after the Bank of Japan said it will buy 1 trillion yen ($11.1 billion) of shares held by financial companies, increasing the money supply.
Bank of Japan
“The Bank of Japan’s purchases may also be aimed at staving off the exceedingly positive bias in the currency,” wrote Ashraf Laidi, the chief market strategist in London at CMC Markets, in a note to clients.
Honda Motor Co. cut its full-year profit forecast by 57 percent last week as vehicle demand in the U.S. plunged and the yen gained against the dollar, eroding the value of exports.
The Aussie rose 1.9 percent to 57.13 yen after Australian Treasurer Wayne Swan announced spending including A$12.7 billion in grants to families and low-income earners and A$28.8 billion for infrastructure. The Reserve Bank of Australia cut the overnight cash rate target by 1 percentage point to a 45-year low of 3.25 percent.
Hungary’s forint tumbled as much as 2.4 percent to a record low of 303.19 versus the euro and extended this year’s decline to 11.6 percent on concern the economic slowdown will worsen. The forint gained 0.2 percent to 230.06 versus the dollar.
Producer Prices
The euro fell earlier to near an eight-week low versus the dollar after the European Union statistics office in Luxembourg reported that the price of goods leaving euro-area factories dropped 1.3 percent in December after a 2 percent decline in previous month.
“Any weakness of European data is likely to weigh on the euro,” said David Woo, London-based global head of foreign- exchange strategy at Barclays Capital. Woo said the euro may fall to $1.25 in three months.
ECB President Jean-Claude Trichet reiterated in an interview on Bloomberg Television at the World Economic Forum in Davos, Switzerland, last week that the central bank’s next important meeting is in March, signaling policy makers will keep the rate unchanged at 2 percent on Feb. 5.
The Bank of England will cut its main rate by a half- percentage point to 1 percent at its next meeting in two days, according to the median forecast of 61 economists surveyed by Bloomberg News.
“Inflation and economic activities have slowed sharply, and there’s scope for the ECB to be more aggressive,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “Going to Thursday’s ECB and BOE meetings, we are negative on European currencies, favoring buying the dollar on pullback.”
