BLBG:Dollar Set For Weekly Gain Before German Confidence Index
The dollar headed for a weekly gain against most of its major peers as shares fell before data today forecast to show German business confidence declined this month, boosting demand for safer assets.
The greenback maintained its biggest advance in six months versus the euro as Asian stocks extended a worldwide slump following data that signaled Europe’s debt crisis is weighing on economic growth. The yen weakened as Japanese lawmakers in the lower house prepared to vote on a bill to double sales tax. Demand for the 17-nation euro was limited after Moody’s Investors Service lowered credit ratings on 15 global banks. Australia’s dollar rallied after falling yesterday.
“Should global growth slow, that is likely to lead to buying of the dollar,” said Daisaku Ueno, a senior foreign- exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, a unit of Japan’s biggest listed bank. “In an ugly contest, the euro is likely to get more votes than the dollar because of the difference in their economic situations and monetary policy.”
The dollar traded at $1.2557 per euro as of 6:37 a.m. in London from $1.2540 at the close in New York yesterday, when it climbed 1.3 percent, the sharpest advance since Dec. 12. It has strengthened 0.7 percent this week. The U.S. currency was at 80.46 yen from 80.28, set for a 2.2 percent gain since June 15. The yen lost 0.4 percent today to 101.04 per euro.
The so-called Aussie added 0.2 percent to $1.0054, pulling back some of yesterday’s 1.6 percent slide, the biggest loss since November.
The MSCI Asia Pacific Index of regional shares dropped 1.1 percent today following a 2.2 percent plunge in the Standard & Poor’s 500 Index (SPX) in New York yesterday.
Ifo Survey
The business climate index for Germany, based on the Ifo institute’s survey of 7,000 executives, will drop to 105.6 from 106.9 in May, according to the median economist estimate compiled by Bloomberg News. That would be the lowest reading since March 2010. Ifo releases the report at 10 a.m. in Munich today.
Data yesterday showed euro-area manufacturing shrank at the fastest pace in three years, and a Chinese output gauge indicated contraction. More Americans than forecast filed claims for jobless benefits, manufacturing in the Philadelphia region shrank and sales of existing homes fell, according to separate reports.
“It looks like the world’s economies are dragging each other down,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “The markets are getting risk-off with stock prices falling.”
Spanish Banks
Among bank downgrades from Moody’s yesterday, Credit Suisse Group AG’s credit rating was reduced by three levels and Morgan Stanley’s by two steps. The rating changes reflect the lenders’ “significant exposure to the volatility and risk of outsized losses inherent to capital-markets activities,” Moody’s Global Banking Managing Director Greg Bauer said in a statement.
Europe’s fiscal turmoil escalated after Spain asked for a bailout of as much as 100 billion euros ($126 billion) to prop up its banks on June 9. The nation’s 10-year borrowing costs this week rose above the 7 percent level that prompted Greece, Ireland and Portugal to seek international rescues.
German Chancellor Angela Merkel, French President Francois Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy are set to gather in Rome today. The meeting is to help prepare for a June 28-29 European Union summit in Brussels at which leaders will discuss further financial integration, including proposals for closer banking cooperation.
Dollar Index
“The news out of Europe remains pretty dour, despite the fact that we’ve had a bit of consolidation higher the last couple weeks,” Mike Moran, a currency strategist at Standard Chartered Bank, said in a telephone interview from New York. “That plays into a broadly risk-averse investor mindset, which has been helping the dollar.”
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was at 82.282 today, after yesterday touching 82.398, the strongest level since June 13.
The euro is down from this year’s high of $1.3487 on Feb. 24 and has depreciated about 6.7 percent in the past 12 months, according to Bloomberg Correlation-Weighted Indexes that measure 10 developed-market currencies.
The dollar climbed above 80 yen yesterday for the first time in two months after the difference between yields on Japanese and U.S. two-year government securities this week reached 21 basis points, or 0.21 percentage point, the most since April 5.
Yield Spread
U.S. two-year yields rose to a two-month high after the Federal Reserve decided on June 20 to extend its so-called Operation Twist program to sell short-term notes and buy longer- term debt. Bank of Japan (8301) Governor Masaaki Shirakawa has said that the spread between U.S. and Japanese yields has a relatively high correlation with the dollar-yen exchange rate.
In Japan, Prime Minister Yoshihiko Noda’s Democratic Party struggled to overcome internal resistance to his bill to double the consumption tax before a lower house vote that may come as soon as today.
Former DPJ leader Ichiro Ozawa said he will vote against the bill to raise the 5 percent tax, risking possible expulsion from the party. As head of the party’s largest faction, Ozawa could take dozens of legislators with him. Noda has said the tax increase is necessary to control record debt and ballooning welfare costs.
“There may be some overseas investors reacting to political uncertainty over the tax debate and concern about a possible downgrade of Japan’s credit rating,” weakening the yen, Yunosuke Ikeda, head of Japan foreign-exchange research at Nomura Securities Co., the nation’s biggest brokerage, wrote in a note to clients today.
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
