Bloomberg News

Dollar Falls on Stimulus Speculation Before Unemployment Claims

November 17, 2011

Nov. 17 (Bloomberg) -- The dollar fell against most of its major counterparts before Federal Reserve Bank of New York President William Dudley speaks today amid speculation the U.S. recovery isn’t strong enough to deter further monetary easing.

The Dollar Index slid from a five-week high before government data today expected to show that the number of Americans filing for unemployment benefits rose last week from a seven-month low. The yen slipped against the South African rand as futures signaled U.S. stocks will rebound, damping demand for safer assets. South Korea’s won advanced.

“The U.S. economic recovery is slow, and the biggest problem is employment isn’t improving very much,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency margin company. “Because an interest-rate increase isn’t anywhere in sight, nobody is willing to buy the dollar.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, lost 0.2 percent to 78.268 after reaching 78.467, the highest since Oct. 10.

The dollar was little changed at $1.3458 per euro at 8:33 a.m. London time. It weakened 0.2 percent to 6.7990 Swedish kronor and was also 0.2 percent lower at 8.1721 rand. The yen was 0.2 percent stronger at 103.59 per euro and gained 0.1 percent to 76.97 per dollar.

The Stoxx Europe 600 Index of shares fell 0.8 percent in early trade, while Standard & Poor’s 500 Index futures rose 0.3 percent.

Quantitative Easing

Jobless claims in the U.S. increased to 395,000 last week from 390,000 the previous week, which was the least since April, according to economist estimates before the government report due today.

Dudley said last month that it’s “possible that we could do another round of quantitative easing.” The Fed has conducted so-called quantitative easing twice, in which the central bank buys government debt to stimulate the economy through lower borrowing costs.

The central bank announced in September a plan to replace $400 billion in shorter maturity debt holdings with longer-term securities in a bid to reduce borrowing costs.

South Korea’s won advanced for the first time in three days as a benchmark share index rose and on speculation exporters are selling dollars to convert income.

The won strengthened 0.5 percent to 1,130.50 per dollar, while the Kospi index of Korean shares climbed 1.1 percent.

Market Sentiment

Spain is scheduled to auction up to 4 billion euros ($5.4 billion) of bonds today, and France will sell as much as 8.2 billion euros of debt.

Bond yields rose this week from the Netherlands to Finland and Austria, suggesting European officials are struggling to convince investors they can stem the crisis.

ECB President Mario Draghi is to speak in Frankfurt tomorrow. The euro-area economy is heading toward a “mild recession” by the end of the year, Draghi said on Nov. 3.

Europe is “headed for recession,” said Richard Grace, Sydney-based chief currency strategist and head of international economics at Commonwealth Bank of Australia. “The likelihood of further ECB rate cuts are going to gradually weigh on the euro.”

Europe’s shared currency slid 1.6 percent over the past six months versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 8.9 percent, the best performance.

Yen Intervention

Japan’s currency tends to strengthen during periods of financial stress because the nation’s export-reliant economy doesn’t need foreign capital to balance current accounts -- the broadest measure of trade. The dollar benefits due to its status as the world’s reserve currency.

“The bottom line would be to stay defensive,” said Bilal Hafeez, global head of foreign-exchange research in Singapore at Deutsche Bank AG. “The best currency for me is the yen.”

Hafeez expects the yen to appreciate toward 70 per dollar in the next three to six months, strengthening past its postwar record of 75.35 set on Oct. 31.

Japan has sold yen in the foreign-exchange market at least three times this year as a strong local currency reduces the competitiveness of its exporters.

The nation’s “approach over the last year or so has been to do periodic one-day interventions, often extremely large, and I think they may continue with that,” said Hafeez. That method of market operation “isn’t really the type of intervention that will turn the currency trend around.”

--With assistance from Candice Zachariahs in Sydney, Jiyeun Lee in Seoul and Kristine Aquino in Singapore. Editors: Mark McCord, Nicholas Reynolds

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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