BLBG: Dollar Falls to Near 2009 Low as Economy Pares Refuge Demand
By Oliver Biggadike and Matthew Brown
July 27 (Bloomberg) -- The dollar fell to near the lowest level this year against the currencies of six major U.S. trading partners on speculation the global economy is shaking off the worst recession since World War II, sapping safety demand.
The U.S. currency traded near a seven-week low versus the euro after a report showed sales of new homes rose the most in eight years. The yen fell against all of its major counterparts as global shares gained and analysts raised their profit estimates for U.S. companies for the first time in two years.
“Some of the safe-haven positions in the U.S. dollar are being unwound, and that’s putting pressure on the greenback,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The market is feeling more optimistic on the prospects for the global economy and essentially is taking on more risk.”
The Dollar Index, which the ICE uses to track the greenback against currencies including the euro, yen and pound, fell 0.2 percent to 78.566 at 10:04 a.m. in New York. It reached 78.334 on June 2, the lowest level since falling to 77.688 on Dec. 18. The dollar slid 0.4 percent to $1.4263 per euro and earlier depreciated to $1.4298, the weakest level since June 3. The yen declined 0.7 percent to 135.62 per euro, from 134.63. The dollar bought 95.29 yen, compared with 94.79 on July 24.
The euro earlier rose against the dollar as GfK AG’s index of German consumer confidence beat economists’ forecasts. The gauge for August, based on a survey of about 2,000 people, increased to 3.5, a 14-month high, from a revised 3 for July, the Nuremberg-based market-research company said in a statement today. The median forecast of 12 economists surveyed by Bloomberg News was for a reading of 2.9.
Asian Currencies
Asian currencies gained as the MSCI World Index of stocks added 0.5 percent, its 11th day of gains. The Dow Jones Stoxx 600 Index of European shares advanced 0.5 percent.
Australia’s dollar jumped to 78.60 yen, the highest level since June 15, from 77.46 yen last week. The South Korean won rose 0.4 percent to 1,244.05 per dollar. Indonesia’s rupiah climbed 0.3 percent to 9,960 per dollar.
“Rising stocks will make it easier for the currencies of resource-rich nations or higher-yielding countries to attract buyers,” said Masakazu Sato, a foreign-exchange adviser at Gaitameonline Co. “The Australian dollar may test 80 yen.”
The yen and the dollar also fell on speculation that declines in currency volatility boosted demand for carry trades.
‘Market Sentiment’
“With market sentiment so positive and foreign-exchange volatility falling to levels not seen since last September, the carry trade is back in vogue,” analysts led by Marc Chandler, New York-based global head of currency strategy at Brown Brothers Harriman & Co., wrote in a research note today.
Implied volatility on options for major exchange rates fell to 13.11 percent today, the lowest level since Sept. 26, as measured by a JPMorgan Chase & Co. index. Lower volatility indicates diminished risk of currency fluctuations that may erode profit on carry trades.
In carry trades, investors get funds in a country with relatively low borrowing costs and invest in another nation with higher interest rates. Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S.
Stronger Pound
The pound rose for the first time in three days against the dollar, increasing 0.5 percent to $1.6504 after Hometrack Ltd. said in a report that eight of 10 U.K. regions showed no change in house prices in July from the previous month.
New-homes sales in the U.S. increased 11 percent in June to a 384,000 annual rate, from 346,000 in the previous month, the Commerce Department reported today. The median forecast of 63 economists surveyed by Bloomberg News was for an increase to 352,000 from a previously reported 342,000.
Wall Street firms raised forecasts on Standard & Poor’s 500 Index companies 896 times in June and lowered 886, according to data compiled by JPMorgan Chase & Co. The last time analysts were bullish on a net basis was in April 2007.
The dollar fell even after Federal Reserve Chairman Ben S. Bernanke said he supports the Treasury’s “strong dollar policy.”
A stronger U.S. economy would bolster the dollar, Bernanke said yesterday in Kansas City, Missouri, in a town-hall-style meeting taped for broadcast on PBS television this week. He also said he expects the economy to grow at an annual rate of 1 percent in the second half, while unemployment will exceed 10 percent before beginning to decline.
Dollar Commitment
“The market has heard this commitment to a strong dollar before and never seems particularly impressed when it is reeled out,” Steven Barrow, head of Group of 10 currency research at Standard Bank Plc in London, wrote in a research report today.
The opposition Democratic Party of Japan has no plan to diversify the country’s foreign reserves away from the dollar if it wins next month’s general election, Secretary-General Katsuya Okada said.
Okada commented after Masaharu Nakagawa, the party’s shadow finance minister, said Japan needs to consider avoiding foreign- exchange risk by diversifying away from U.S. bonds. Japan has almost $1 trillion in currency reserves and is the second- biggest foreign holder of U.S. Treasuries, after China.
Norway’s krone rose for a third day against the euro, advancing 0.5 percent to 8.8263 as crude oil touched a three- week high before slipping.
Buying kroner versus euros will return more in the next year than all 48 other foreign-exchange trades tracked by global investment banks, according to median predictions in Bloomberg analyst surveys. Norway’s currency will rise 9 percent by June to 8.2 per euro, from 8.8680 on July 24, the median of 19 forecasts shows.
To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net
