Bloomberg News

Dollar Advances Before U.S. Reports on Durable, Capital Goods

June 22, 2011

June 23 (Bloomberg) -- The dollar advanced against most of its major counterparts before U.S. reports tomorrow forecast to show orders for durable and capital goods increased in May.

The U.S. currency rose for a second day against the euro after Federal Reserve Chairman Ben S. Bernanke damped speculation the central bank would expand stimulus measures after the second round of quantitative easing, or so-called QE2, ends this month. The euro depreciated against 12 of its 16 major peers on concern Greece will struggle to reduce debt.

“There’s going to be no talk of QE3 over the next couple of months,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp, Australia’s second-largest lender. “Without any further stimulus signaled there’s a good chance it could be a negative for risky assets which means it could be positive for the U.S. dollar.”

The dollar climbed $1.4325 per euro as of 9:20 a.m. in Tokyo from $1.4357 in New York yesterday. It strengthened to 80.47 yen from 80.29. The euro was little changed at 115.27 yen from 115.28.

Orders for durable goods, those designed to last at least three years, increased 1.5 percent in May after dropping 3.6 percent the prior month, economists surveyed by Bloomberg News said ahead of the Commerce Department data. Bookings for non- defense capital goods excluding aircraft gained 1 percent last month after falling 2.6 percent the prior month, according to economist estimates.

‘Moderate Pace’

The U.S. economy is recovering at a “moderate pace, though somewhat more slowly” than the central bank had expected, Bernanke said yesterday at a press conference after a meeting of the Federal Open Market Committee. Policy makers decided to keep the Fed’s balance sheet at a record to spur the slowing economy after completing $600 billion of bond purchases this month.

The Fed cut its economic forecasts for this year and next, predicting the U.S. economy will expand by 2.7 percent to 2.9 percent this year, down from April’s forecasts of 3.1 percent to 3.3 percent, based on the median range of projections. Inflation excluding food and energy prices will range from 1.5 percent to 1.8 percent this year, the projections showed yesterday, up from 1.3 percent to 1.6 percent in the April forecasts.

Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said yesterday in a Twitter posting the Fed may signal in August of plans for additional monetary stimulus.

“Next Jackson Hole in August will likely hint at QE3/interest rate caps,” Gross wrote, referring to the central bank’s annual symposium in Jackson Hole, Wyoming.

Greece Budget Cuts

Demand for the euro was limited on speculation Greek Prime Minister George Papandreou will face difficulty in getting parliamentary approval next week for a package of budget cuts and asset sales. Papandreou is seeking to pass the measures to help ensure more aid from the European Union and the International Monetary Fund and stave off default.

European leaders will discuss Greece’s needs at a two-day summit in Brussels starting today and finance chiefs will decide on July 3 whether Greece has met conditions for the next aid payment. Investors are watching to see if the ministers will clear the payment or prolong the uncertainty in a bid to increase pressure on the country’s lawmakers.

“The euro isn’t a currency that you can buy now,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank. “Unless Greece is able to proceed with fiscal reform at a speed the world has never seen before, additional loans will just delay a default.”

Antonis Samaras, leader of the opposition in the Greek parliament, said his conservative New Democracy party will vote against the government’s new austerity measures, contrary to European Union calls for unity, the Financial Times reported, citing an interview.

--With assistance from Candice Zachariahs in Sydney. Editors: Jonathan Annells, Naoto Hosoda

To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net Masaki Kondo in Singapore at mkondo3@bloomberg.net;

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.


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