BS: Dollar Falls as Signs of Growth Reduce Safety Bid; Pound Drops
Dec. 23 (Bloomberg) -- The dollar decreased against the South African rand and Brazilian real before reports forecast to show consumer spending and new-home sales advanced in the world’s largest economy, damping demand for a refuge.
The euro was little changed against the yen as the European Central Bank Executive Board member Lorenzo Bini Smaghi said policy makers shouldn’t shirk from using quantitative easing if it’s needed to avoid deflation. The pound dropped versus most of its 16 major counterparts tracked by Bloomberg as U.K. services output fell the most in six months in October.
“The dollar is drifting gently lower,” said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London. “Risk remains very tentatively on.”
The U.S. currency depreciated 0.2 percent to $1.3069 against the euro at 7:05 a.m. New York time and was headed for its first weekly decline since Dec. 2. The dollar dropped 0.2 percent to 78.05 yen. The euro traded at 102.01 yen.
The Stoxx Europe 600 Index of European equities increased 0.9 percent, while futures on the Standard & Poor’s 500 Index rose 0.4 percent.
South Africa’s rand gained 0.5 percent to 8.1530 versus the U.S. currency. The Brazilian real rose 0.4 percent to 1.8488. Australia’s dollar appreciated 0.3 percent to $1.0159 after touching $1.0219 two days ago, the highest level since Dec. 12.
‘Bearish’ on Dollar
“I’m bearish on the U.S. dollar,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “You may see a bit of optimism in the early part of January.”
Consumer spending in the U.S. grew for a fifth month in November, increasing 0.3 percent, according to the median forecast of 79 economists in a Bloomberg News survey before today’s report from the Commerce Department. Sales of new homes rose 2.6 percent last month, according to the median forecast before a separate report.
House Speaker John Boehner agreed yesterday to extend a U.S. payroll-tax cut past its Dec. 31 expiration. Without congressional action, the payroll tax for employees will rise to 6.2 percent in January from the current 4.2 percent.
South Korea’s won appreciated 0.5 percent to 1,150.20 per dollar as Moody’s Investors Service said in a statement yesterday that the outlook for the nation’s ratings remains stable despite geopolitical risks linked to the death of the North Korean leader, Kim Jong Il.
Korean Volatility
The Bank of Korea and the Finance Ministry said today they will try to reduce the currency’s volatility and expand trade financing for exporters.
Sterling slid 0.1 percent to 83.32 pence per euro and traded little changed at $1.5675 as the Office for National Statistics said services, which account for about three quarters of the economy, fell 0.7 percent in October.
The euro has fallen 1.4 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen has rallied 3.5 percent.
Bini Smaghi said in an interview published yesterday by the Financial Times that policy makers shouldn’t shirk from using quantitative easing if deflation becomes a danger.
“I do not understand the quasi-religious discussions about quantitative easing,” said Bini Smaghi, who will leave his post at the end of the month. “It is appropriate if economic conditions justify it, in particular in countries facing a liquidity trap that may lead to deflation.”
--Editors: Dennis Fitzgerald, Matthew Brown
To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
