BLBG: Dollar Declines for Fourth Day Against Euro on Risk Appetite
June 30 (Bloomberg) -- The dollar fell for a fourth day against the euro as stocks rose on speculation the global recession is abating, damping demand for the U.S. currency as a refuge.
The dollar declined against 13 of the 16 most-traded currencies before a U.S. report that economists say will show consumer confidence rose to a nine-month high, giving investors more confidence to buy higher-yielding assets. The yen rose from a two-week low against the euro and gained versus the dollar on speculation investors reduced bets Japan’s currency will weaken before the Bank of Japan’s quarterly Tankan survey tomorrow.
“The risk potential in terms of growth is to the upside and that’s supporting risk-taking,” said Lee Hardman, a currency strategist in London at Bank Tokyo-Mitsubishi UFJ Ltd. “There’s potential for risk assets to extend higher.”
The dollar weakened to $1.4104 per euro as of 10:29 a.m. in London from $1.4083 in New York yesterday. The U.S. currency depreciated to $1.6607 per pound from $1.6567, after sliding to $1.6743, the weakest level since Oct. 21.
The yen strengthened to 134.95 per euro from 135.31, after falling to 135.96 earlier, the lowest level since June 15. Japan’s currency climbed to 95.66 per dollar from 96.06.
Deutsche Bank AG raised its forecast for global economic growth next year to 2.5 percent, from a 2 percent prediction in March, saying the outlook for investment and exports improved. The change reflected “greater confidence in the effectiveness of authorities’ efforts to restore stability in the financial sector,” economists Peter Hooper and Thomas Mayer wrote.
Stocks Gain
The MSCI World Index climbed 0.4 percent in a fifth day of gains, and the Nikkei 225 Stock Average advanced 1.8 percent. U.S. stock futures rose. The VIX Index, a measure of market volatility known as Wall Street’s fear gauge, slid to 25.35 yesterday, the least since September, when Lehman Brothers Holdings Inc. collapsed.
The dollar may decline to between $1.45 and $1.50 per euro in the third quarter, Hardman said, adding that the yen is likely to stay “stuck” between 95 and 100 in the same period.
“The dollar acted as a safe haven during the crisis, appreciating notably,” Ulrich Leuchtmann, head of foreign- exchange research in Frankfurt at Commerzbank AG, Germany’s second-largest lender, wrote in a client note today. “So, it’s to be expected that this situation would change once things returned to normal.”
Quarterly Performance
The U.S. currency declined 6.1 percent against the euro this quarter, its first decline since March 2008, pushing it 1 percent lower this year. The yen is down 6.2 percent versus the euro this year, compared with a 2.6 percent decline in the first six months of 2008.
Confidence among U.S. consumers rose to 55.3 in June, the highest level since September 2008, from 54.90 in May, according to a Bloomberg News survey of economists. The Conference Board will release the sentiment index at 10 a.m. in Washington.
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, declined 0.2 percent to 79.672.
“The main transmission mechanisms from a pro-risk environment to euro-dollar strength appear to be in operation,” Steven Pearson, a foreign-exchange strategist at Bank of America in London, wrote in a report today. “The dollar needs materially disappointing economic data to short-circuit this process.”
The yen reversed earlier losses against the dollar and the euro. The Tankan survey will show an index of sentiment among large manufacturers rose to minus 43 from a record low of minus 58 in March, according to a Bloomberg News survey of economists. A negative number means pessimists outnumber optimists.
‘Getting Cautious’
“Market participants are probably getting cautious ahead of tomorrow’s Tankan,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second- largest bank. “They’re likely closing short-yen positions.” A short position is a bet an asset will decline.
Futures traders cut their bets the yen will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed on June 26. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 4,007 on June 23, compared with net shorts of 8,563 a week earlier.
ECB’s Nowotny
The euro gained versus the dollar on speculation ECB council member Ewald Nowotny will today signal the central bank will keep interest rates on hold into next year to aid the recovery. Nowotny was scheduled to speak in Vienna today.
Economic confidence in the euro region rose in June more than economists forecast, the European Commission in Brussels reported yesterday. Consumer sentiment climbed to minus 25 in June from a revised minus 28 in May. A government report today showed the number of Germans out of work increased less than forecast this month.
ECB member Axel Weber, who heads the Bundesbank, said last week the central bank has used up its scope to cut rates. Policy makers will leave the benchmark rate unchanged at this week’s meeting, according to the median estimate of economists surveyed by Bloomberg News.
Asian currencies headed for their biggest quarterly gain versus the dollar since 2004, led by Indonesia’s rupiah and South Korea’s won, as optimism the worldwide economic slump is easing fueled demand for emerging-market securities.
Indonesia’s rupiah extended its quarterly gain on optimism President Susilo Bambang Yudhoyono will win re-election next month and introduce policies to support growth in Southeast Asia’s largest economy. The won advanced as the Kospi Index of equities posted its best quarter in two years.
“Most countries are moving along with a refreshing recovery trend that should be good for markets,” said Yeo Chin Tiong, head of treasury at OSK Investment Bank Bhd. in Kuala Lumpur. “The economies are chugging along, not fantastic, but stock and currency markets are trading on feel-good sentiment.”
The rupiah rose 0.3 percent to 10,208 per dollar, taking this quarter’s gain to 15 percent. The won rose 1 percent to 1,273.70 for an 8.6 percent advance since March 31.
