Bloomberg News

Dollar Falls Versus Higher-Yield Currencies Before U.S. Manufacturing Data

March 01, 2012

The dollar depreciated against the majority of its most-traded counterparts as reports showed manufacturing from China to the U.S. expanded in February, increasing speculation that global growth is on the mend.

Mexico’s peso and the Australian dollar were among the biggest winners of the 16 major currencies on demand for higher- yielding assets. Brazil’s real rebounded after earlier falling against the dollar when the nation extended a foreign investment tax to try and curb the currency’s strength.

“The global economy appears to be headed in the right direction,” said Joe Manimbo, a market analyst in Washington at Western Union Co. (WU)’s Western Union Business Solutions unit. “The market may have entered a period of consolidation and that has caused the dollar to surrender some of its gains.”

The dollar declined 1.1 percent to 12.7241 Mexican pesos at 5 p.m. in New York. The greenback rose 0.1 percent to $1.3311 per euro and was little changed at 81.12 yen. The euro declined 0.4 percent to 83.42 U.K. pence and was 0.1 percent lower at 107.98 yen.

Brazil said the 6 percent tax, which has been extended to foreign loans and bonds that mature in three years or less, takes effect immediately in a government effort to stem an 8.9 percent gain this year in the currency. The tax was previously applied to foreign borrowing of up to two years.

The real rose 0.2 percent to 1.7142 per dollar after reaching 1.6890 yesterday, the strongest level since Oct. 31.

‘Moderate Pace’

The Institute for Supply Management’s U.S. factory index fell to 52.4 in February from 54.1 in the prior month, the Tempe, Arizona-based group’s data showed today. Readings above 50 signal growth. A separate report showed U.S. personal spending increased 0.2 percent in January, less than the 0.4 percent forecast in a Bloomberg survey.

The U.S. economy grew at a “modest to moderate pace” in January and early February, fueled by manufacturers, the Fed said yesterday in its Beige Book business survey.

The growth is being echoed in other parts of the world, spurring investor confidence in the global economic recovery.

China’s purchasing managers’ index rose for a third month in February, increasing to 51 from 50.5 in January, the statistics bureau and logistics federation said. Japanese capital spending excluding software climbed 4.9 percent last quarter from a year earlier, after declining 11 percent in the previous three months, the Finance Ministry said in Tokyo.

Australia’s dollar appreciated 0.7 percent to $1.0809. China is Australia’s biggest trading partner.

Dollar Index

“Positive Chinese data is good for global growth and it’s good for the high yielders,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. (BK), the world’s largest custodial bank, with more than $26 trillion in assets under administration.

The yen, which was the worst-performing major currency in February, dropped against most of its counterparts.

“The yen is the ugliest of the ugly,” John Taylor, founder of currency hedge fund FX Concepts LLC, said in a radio interview on “Bloomberg on the Economy” with Sara Eisen and Michael McKee. “Japan is in a situation which is really not very pretty. World growth is generally bad for the yen because it stimulates the Japanese people to put their money offshore.”

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was little changed at 78.799. The gauge slid to 78.095 yesterday, the lowest since Dec. 2.

Bernanke Testifies

Federal Reserve Chairman Ben S. Bernanke, in testimony today before Congress, said elevated unemployment and subdued inflation mean interest rates are likely to stay low, without offering any sign that the economy needs an additional monetary boost.

The euro fell for a fifth day versus the pound, the longest such streak since November 2010, after a second round of loans from the European Central Bank yesterday failed to bring down Portuguese bond yields. The yields on five-year Portuguese notes rose for an eighth day, touching 17.5 percent, the highest level since Feb. 7.

Default insurance on Greek debt won’t be paid out, the International Swaps & Derivatives Association said after it was asked to rule whether part of the nation’s $170 billion bailout was a credit event. The decision of the committee was unanimous, ISDA said on its website.

The ISDA said the European Central Bank’s exchange of Greek bonds for new securities exempt from losses being imposed on private investors hasn’t triggered $3.25 billion of outstanding credit-default swaps. A swaps payout may still happen if Greece uses collective-action clauses on private investors who refuse to take a loss on their debt holdings, according to ISDA’s rules.

‘Double Top’

A “modest” rise in U.S. interest rates, falling euro-zone rates and the ECB’s second refinancing operation this week may help weaken the euro against the dollar, according to Royal Bank of Scotland Plc.

Currency strategists led by Robert Sinche recommend establishing a short position at $1.3330 per euro, targeting a drop to $1.2650 and with a stop on a two-day close above the pair’s 200-day moving average at $1.3717.

Signs of a short-term “double top” in the euro around the $1.3487 level -- which the currency has twice failed to breach - - and a key reversal yesterday, also suggest the currency pair may be poised for a correction, Sinche, global head of currency strategy, wrote in a note to clients.

Oil Surges

The yield on 10-year Treasury notes rose to 2.03 percent today, from as low as 1.79 percent this year. The ECB has lowered its benchmark interest rate twice since October and is expected to do so once more this year, according to a Bloomberg News survey of economists.

Mexico’s peso and Canada’s dollar surged as oil, which both nations export, rose above $110 a barrel for the first time since May.

Crude for April delivery rose 1.7 percent to $108.75 a barrel after earlier touching $110.55. Canada’s dollar advanced 0.4 percent to 98.55 Canadian cents after reaching 98.42, the strongest level against the greenback since Sept. 19.

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

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


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