BLBG: Dollar Weakens as Stocks Rise on Evidence of Economic Recovery
The dollar fell, heading for the biggest monthly decline this year against the euro, as stocks rose on growing evidence the global recession is easing.
The U.S. currency dropped to its lowest level this year versus the euro and weakened most against the Australian and New Zealand dollars after South Korea said its state pension fund plans to hold fewer Treasuries relative to other assets. The euro rose as German retail sales climbed for the first time in four months. The pound traded above $1.60 for a third day, heading for its biggest monthly gain since March 1985, after U.K. house prices unexpectedly jumped in May.
“As the world looks, not rosier, but not quite as dramatically gloomy, the dollar and the yen are under pressure again,” said Martin McMahon, a currency strategist at Credit Suisse AG in Zurich. “They are suffering in a growing risk- appetite world.”
The dollar weakened to $1.4085 per euro as of 10:45 a.m. in London, from $1.3941 in New York yesterday, bringing its decline this month to 6.1 percent, the most since December. The yen was at 135.15 per euro, from 135.04. The Japanese currency appreciated to 96.00 per dollar, from 96.85.
The dollar dropped for a second day versus the euro as every major stock market in Europe advanced, with the Dow Jones Stoxx 600 Index rising 1.1 percent. Standard & Poor’s 500 Index futures gained 0.6 percent.
‘Outflows at Work’
“Capital outflows from the dollar are now at work,” said Kengo Suzuki, manager of the foreign bond trading department in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest banking group. “Economic data at home and abroad now suggest the worst of the recession is over.”
The dollar extended declines after South Korea’s National Pension Service, which had 236 trillion won ($187 billion) of assets at end-2008, pared its allocation for Treasuries over the next five years, reigniting concern record government debt sales will damage threaten the U.S.’s AAA credit rating.
“The report of the Korean pension fund’s plan to reduce its weighting of U.S. Treasuries triggered buying of the euro against the dollar,” said Takashi Kudo, director of foreign- exchange Sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “With the dollar still sensitive to speculation related to its debt, the market is waiting for the visit to China next week by U.S. Treasury Secretary Timothy Geithner for fresh trading leads.” China is the biggest holder of U.S. government debt.
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, fell 1 percent to 79.734.
Euro Gains
The euro strengthened after Germany’s Wiesbaden-based Federal Statistics Office said retail sales, adjusted for inflation and seasonal swings, rose 0.5 percent from March, snapping three months of declines.
The euro also advanced as crude oil headed for its biggest monthly gain in a decade, adding to speculation the European Central Bank will avoid an interest-rate cut next week to prevent stoking inflation.
“Rising crude oil prices give little reason for the ECB to take action on interest rates,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co. “The yield advantage will support the euro.”
The ECB’s benchmark policy rate is 1 percent, compared with as low as zero in the U.S. and 0.1 percent in Japan. Crude oil for July delivery rose 0.8 percent to $65.57 a barrel on the New York Mercantile Exchange, taking its advance in May to 28 percent, the biggest monthly gain since March 1999.
U.K. Housing
The pound advanced after Nationwide Building Society said U.K. house prices unexpectedly jumped 1.2 percent in May in a sign the property market slump is easing.
The British currency strengthened to $1.6072, near the highest level this year, from $1.5945. It rose 8.8 percent since April 30, the most since March 1985, when it climbed almost 15 percent.
“The pound is rising partly because of the housing survey and because of the overall positive momentum in the gradual recovery story coming through,” said Thanos Papasavvas, head of currency management in London at Investec Asset Management. “There was a lot of bad news priced into sterling. This is partly a re-balancing back to fair value for the pound.”
Japanese Factory Production
The yen fell earlier as Japan’s Trade Ministry said factory production climbed 5.2 percent in April from March, denting demand for the currency as a refuge. The median estimate of 30 economists surveyed by Bloomberg News was for a 3.3 percent increase. The yen declined 2 percent against the dollar this week as optimism about a global recovery spurred Japanese investors to look abroad for higher returns.
Bank of Japan Governor Masaaki Shirakawa said this week the world’s second-largest economy will grow this quarter after contracting a record 15.2 percent in the three months ended March 31.
“The better-than-expected output data seem to suggest the Japanese economy has bottomed out and may continue to surprise in coming months,” said Taro Saito, senior economist in Tokyo at NLI Research Institute Ltd., a unit of Japan’s biggest life insurer.
Japanese investors bought 641.1 billion yen ($6.61 billion) more overseas bonds and notes than they sold in the week ended May 23, the biggest net purchases in a month, according to the finance ministry.
