Bloomberg News

Citigroup Buys Risk Currencies Before European Crisis Resolution

October 19, 2011

Oct. 19 (Bloomberg) -- Citigroup Inc. is purchasing higher-yielding currencies before a resolution to the European debt crisis, citing a long-term lack of dollar demand.

The U.S. currency’s rally in September was driven by the safety appeal of Treasuries rather than other U.S. assets, signaling an inherent weakness in the greenback, according to Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York.

Treasury Department data released yesterday show foreign private investors bought $70.1 billion of U.S. notes and bonds in August, compared with purchases of $1.9 billion of corporate bonds and $9.9 billion of agency bonds. They sold $6.6 billion of equities. They sought refuge in Treasuries during the financial turmoil that followed the Aug. 5 downgrade of U.S. debt by Standard & Poor’s.

“Investors aren’t buying the dollar because they like it, but because in the worst of all worlds it remains the safest asset, and once you exit from that world it’s the least attractive,” Englander said in an interview. “We’ve positioned ourselves to buy risk in the view that the small G-10 currencies are going to rebound strongly once we get past this episode.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose 6.3 percent in September, the most since October 2008. The gauge has lost 2.1 percent this month.

Frankfurt Meeting

French President Nicolas Sarkozy and German Chancellor Angela Merkel convened in Frankfurt to narrow divisions four days before a weekend summit on the region’s sovereign debt crisis. Group of 20 finance chiefs last week set the Oct. 23 summit in Brussels as a deadline for action.

“As things stabilize in Europe, there will be a return of risk appetite,” Englander said. “You’re going to see the dollar against emerging markets and the dollar against commodity currencies probably reach new lows.”

Nomura Holdings Inc. recommended that investors sell the Australian dollar versus its U.S. counterpart because global risks are “skewing to the downside” before this weekend’s European summit.

The firm sold $20 million of Australian dollars at $1.0325, expecting the currency to weaken to 98 cents, Geoff Kendrick, head of European currency strategy at Nomura International in London, wrote in a note to clients today. The firm added a so-called stop-loss order at $1.0450 in case the currency appreciates. Kendrick wasn’t available to comment.

--With assistance from Chris Fournier in Halifax, Nova Scotia. Editors: Dennis Fitzgerald, Greg Storey

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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