BLBG: Dollar Gains Against Euro, Yen as Global Stocks, Housing Starts Decline
The dollar rose from a two-month low versus the euro and for a second day against the yen as declines in equities and U.S. housing starts last month renewed concern that the global economic recovery is faltering.
The Canadian dollar fell after the nation’s central bank said it may slow the pace of interest-rate increases after boosting the target for the second time in less than two months. The euro weakened agaist most of all its most traded counterparts after Hungary’s borrowing costs rose to a 19-week high at its first debt auction since international creditors suspended talks with the government.
“We’re starting to see some further signs of weakness and that’s going to continue to drive the yen crosses and support the dollar,” said Brian Dolan, chief strategist at FOREX.com, a unit of online-currency trading firm Gain Capital in Bedminster, New Jersey. “In Europe we had a failure in the Hungarian debt auction and that is rekindling some concern in the European debt crisis.”
The yen declined to 86.90 per dollar at 9:53 a.m. in New York, from 86.69 yesterday, after climbing to 86.27 on July 16, the strongest since Dec. 1. The euro dropped 0.4 percent to $1.2889, after reaching $1.3029, the highest level since May 10. Canada’s dollar fell 0.1 percent to C$1.0560 per U.S. dollar after earlier strengthening as much as 0.6 percent.
Housing starts fell in June to the lowest level since October as a slump in sales following the expiration of a government tax incentive caused U.S. builders to cut back. Work began on 549,000 houses last month, fewer than forecast by the median estimate of economists surveyed by Bloomberg News and down 5 percent from May, Commerce Department figures showed.
Bank of Canada
The Standard & Poor’s 500 Index slipped 1 percent and the Stoxx Europe 600 Index dropped 0.3 percent.
Bank of Canada Governor Mark Carney raised the target rate for overnight loans between commercial banks a quarter point to 0.75 percent, a decision expected by all 20 economists surveyed by Bloomberg News. The growth forecast was cut to 3.5 percent from 3.7 percent for this year and to 2.9 percent from 3.1 percent for 2011, according to a statement from the bank.
The yen dropped versus 12 of its 16 major counterparts as speculation lingered that the Bank of Japan will intervene to weaken the currency after it climbed to a seven-month high last week.
The dollar’s 14-day relative strength index against the yen, a gauge that compares the magnitude of gains and losses, was at 29 yesterday, below the 30 threshold that some traders see as a sign a price has fallen too far and is poised to rally.
Bank of Japan
The Bank of Japan may ease monetary policy if the yen stays around 85 against the dollar, Dow Jones Newswires reported yesterday. Central bank Governor Masaaki Shirakawa said last week a stronger yen and stock declines may hurt the economy.
European regulators are examining the strength of 91 banks to determine whether they can survive potential losses on sovereign-debt holdings. Results will be released July 23. Spanish officials including Finance Minister Elena Salgado said last week they’re confident about the results of the stress tests on Spanish banks.
“Our bank credit analysts expect positive results and favor being long risk heading into the release of the European bank stress tests,” said David Forrester, a currency economist at Barclays Capital in Singapore. “For the euro, we expect an initial rally, but the most important change would be a reduction in the likelihood of a large downside move.”
Reserve Bank
The 16-nation currency has rallied 5.2 percent this month after seven straight months of decline. The euro’s gains are close to petering out amid “fragile market confidence,” Royal Bank of Scotland Group Plc said.
“Confidence will take a hit if European economic growth begins to fade,” Greg Gibbs, a currency strategist at RBS in Sydney, wrote in a report. “It’s hard to see confidence in European debt markets improving further from here. Perhaps the stress tests will deliver one more spurt of confidence. But it’s close to a peak and so is the euro.”
Reserve Bank of Australia officials said in minutes of their July 6 meeting released today that they’ll use the results of European bank stress tests and local inflation figures due next week to decide whether to resume raising interest rates.
Australia’s dollar strengthened versus 15 of the 16 major currencies, snapping a three-day losing streak.
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
