BLBG: Dollar Slides to 4-Month Low Versus Euro on U.S. Credit Concern
The dollar fell to a four-month low against the euro and weakened versus the yen on speculation the U.S. government’s creditworthiness is deteriorating, sapping demand for the U.S. currency.
The yen strengthened to a nine-week high versus the dollar after Japan’s Finance Minister Kaoru Yosano said the government won’t intervene in the currency market and the Bank of Japan raised its economic assessment. The dollar headed for its biggest weekly drop in two months versus the euro after Standard & Poor’s yesterday cut its outlook on the U.K.’s AAA credit rating, raising concern the same may happen to the U.S.
“Dollar sentiment is particularly bad,” said Sean Callow, a senior foreign-exchange strategist in Sydney at Westpac Banking Corp., Australia’s biggest lender by market value. “A lot of Treasuries are held by foreign investors and any concern about the value of U.S. debt will have a massive impact” on the U.S. currency.
The dollar declined to $1.3916 per euro as of 1:48 p.m. in Tokyo, after dropping to $1.3955, the weakest since Jan. 5. The U.S. currency has slumped 3 percent this week, heading for the biggest loss since the five days to March 20.
The yen rose to 94.10 per dollar, after reaching 93.87, the strongest level since March 19. Japan’s currency is heading for a 1.2 percent gain this week. The yen traded at 130.94 versus the euro from 131.15.
BOJ Outlook
The Bank of Japan kept its target lending rate at 0.1 percent at the end of its policy meeting today and raised its economic assessment for the first time since July 2006. The central bank also said it will accept foreign debt owned by banks as collateral for loans.
The dollar weakened versus 13 of the 16 most-traded currencies after U.S. Treasury yields rose the most in two weeks yesterday on concern the government will not be able to fund its fiscal spending, and as BankUnited Financial Corp. became the biggest U.S. bank to collapse this year.
The cost to protect buyers of U.S. sovereign bonds for five years climbed to a two-week high, indicating a worsening perception of the nation’s credit quality. U.S. credit-default swaps rose to 37.745 yesterday, the highest since May 4, from 34 on May 20, according to CMA DataVision. The five-year CDS price for Japan fell to 50 from 50.06 on May 20.
BankUnited was in an “unsafe condition” and the quality of its loan portfolio had deteriorated, the Office of Thrift Supervision, the lender’s main regulator, said yesterday. BankUnited joined 33 U.S. banks and at least five credit unions that have gone under since January.
‘Diversify’ Holdings
“The urgency for money managers with large U.S. dollar holdings to diversify could well intensify,” analysts led by Callum Henderson, global head of currency strategy in Singapore at Standard Chartered Bank, wrote in a note today. “The first considerations will likely be hard currencies that are liquid. On these counts, the likes of the euro, yen, Australian dollar and Canadian dollar will win out.”
The dollar touched a four-month low of 1.0895 Swiss francs from 1.0936. The U.S. currency fell to C$1.1346 from C$1.1374 yesterday, after reaching C$1.1328, the weakest since Oct. 14.
The U.S. currency also fell for a fifth day versus the euro after Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. will “eventually” lose its AAA rating.
Rating Cut
“The markets are beginning to anticipate the possibility” of a U.S. credit rating-cut, Newport Beach, California-based Gross said in an interview yesterday on Bloomberg Television. “It’s certainly nothing that’s going to happen overnight.”
The administration of President Barack Obama will sell a record $3.25 trillion of debt in the fiscal year ending Sept. 30, according to Goldman Sachs Group Inc. Treasury Secretary Timothy Geithner said yesterday the Obama administration is committed to minimizing the federal budget deficit, targeting a reduction to 3 percent of gross domestic product or smaller, compared with a projected 12.9 percent this year.
The Dollar Index, used by the ICE to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, declined 0.2 percent to 80.412 after dropping to 80.21, the lowest since Dec. 29.
The pound traded at $1.5834 from $1.5844 yesterday after earlier climbing to $1.5897, the highest since Nov. 6. The currency slumped as much as 1.5 percent yesterday after S&P lowered its rating outlook to “negative” from “stable,” and said the nation faces a one in three chance of a rating cut.
The yen headed for a thirdly weekly gain versus the greenback after Japan’s Finance Minister Yosano said the “government isn’t considering currency intervention at this point.” Policy makers haven’t fully analyzed why the yen is gaining, he said at a press conference today in Tokyo.
“We are seeing the appreciation of the yen, but mainly because of the negative views on the U.S. economy,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “It would be hard for the Japanese government to change the direction of the market because it’s more of a dollar-weakness issue rather than a yen-strength issue.”
