RTRS: Dollar hits 5-month low as higher-yielding assets sought
The dollar hit five-month lows against a basket of currencies on Friday and the yen also dropped as investors sought higher-yielding and riskier assets, believing the worst of the global recession may have passed.
World stocks posted new 2009 highs, encouraging investors to dump the greenback, which they had hoarded due to its liquidity and safe-haven benefits during the worst of the global financial crisis last autumn.
"It's driven by equities looking stronger and as a result of that the dollar is losing momentum... people are buying into the 'worst is behind us' story," said Audrey Childe-Freeman, senior FX strategist at Brown Brothers Harriman.
Month-end fixings by corporations and pension funds also pushed the dollar lower, traders said.
By 7:35 a.m. EDT, the dollar index, a gauge of the U.S. currency's performance against six major currencies, fell 1.3 percent to 79.513, having earlier hit 79.421, its lowest since mid December.
It is now down some 6.3 percent for the month, on track for its biggest monthly fall since 1985.
The index tumbled last week on concerns U.S. government debt may lose its top triple-A rating as a result of the rising debt levels needed to fix the economy and rehabilitate the financial sector.
Those worries, though still at the back of investors' minds, receded somewhat after Moody's Investors Service affirmed the country's credit rating and the market took down over $100 billion of U.S. Treasury issuance this week as longer-dated yields soared.
"The simultaneous bear steepening of the US yield curve and renewed dollar weakness is proof that investors are demanding a greater risk premium for holding U.S. assets," Barclays analysts said in a note.
Adding to pressure on the dollar, South Korea's National Pension Service (NPS) said on Friday it would reduce exposure to U.S. government bonds and equities in its five-year portfolio.
U.S. government bonds account for 83 percent of the pension fund's direct holdings of foreign bonds, which are currently worth $6.5 billion.
EURO AT YEAR'S HIGH
The euro struck its highest level this year against the dollar at $1.4134 after a brief dip after data showed euro zone consumer prices were flat in May for the first time, raising the risk of deflation.
Sterling meanwhile, rose more than one percent to $1.6182, its highest since early November.
The dollar also hit an eight-month low against the Australian dollar and the New Zealand dollar as investors sought out higher-yielding assets.
