Bloomberg News

Dollar Advances Against Euro Amid Fiscal-Cliff Meeting

November 16, 2012

Japanese Prime Minister Yoshihiko Noda

Yoshihiko Noda, Japan's prime minister, right, delivers his policy speech in the lower house of parliament in Tokyo. Photographer: Haruyoshi Yamaguchi/Bloomberg

The dollar rose for the first time in three days versus the euro as investors sought haven assets amid concern President Barack Obama’s talks with U.S. lawmakers to avert the so-called fiscal cliff will stall.

The Dollar Index extended its fourth weekly advance as Hamas said it fired at the parliament in Jerusalem as Israel deployed tanks near the Gaza border. The yen strengthened against most of its 16 major counterparts amid speculation this week’s drop was too rapid. The franc fell after Swiss National Bank President Thomas Jordan said the currency remains a strain on the economy.

“You have this fiscal-cliff issue being seen as very risk negative,” Alan Ruskin, global head of Group of 10 foreign- exchange strategy at Deutsche Bank AG in New York, said in an interview on Bloomberg Television’s “Lunch Money” with Sara Eisen. “The dollar is reacting in a very orthodox fashion to this. Eventually, this is going to turn into a risk-buying opportunity.”

The dollar climbed 0.3 percent to $1.2743 per euro at 5 p.m. New York time. It rose 0.2 percent to 81.32 yen, advancing 2.3 percent for the week. The greenback touched 81.46 yen yesterday, the strongest level since April 25. The Japanese currency gained 0.1 percent to 103.60 per euro and posted a weekly decline of 2.5 percent.

The greenback may increase to the low $1.30 range against the euro if investors reverse course and start seeking risk, according to Ruskin. The dollar last broke $1.30 on Oct. 31.

The Dollar Index (DXY), which is used to track the greenback versus the currencies of six U.S. trading partners, rose 0.1 percent to 81.194, extending its weekly advance to 0.2 percent.

Rand, Franc

South Africa’s rand gained versus all of its major counterparts after failing yesterday to break through 9 per dollar, seen as an important resistance level to further weakness. Resistance refers to an area on a chart where sell orders may be gathered.

The currency advanced 0.6 percent to 8.8643 per dollar after appreciating as much as 0.8 percent, its biggest increase since Nov. 6. The rand has still weakened against all of its major peers but the yen this week.

The franc fell against the dollar after Jordan addressed the SNB ceiling of 1.20 francs per euro, introduced in September 2011 after the currency rose to a record, hurting exporters.

“At its current rate, the Swiss franc remains high and is weighing on the Swiss economy,” Jordan said in Zurich today, according to a copy of his speech. “The minimum exchange rate against the euro will continue to apply” as the reasons for setting it “retain their validity.”

Middle East

The franc dropped 0.4 percent to 94.55 centimes per dollar and was little changed at 1.2048 versus the euro. It touched 1.2035 on Nov. 14, the strongest since Sept. 12.

The euro declined against the majority of its most-traded peers as Israel continued its bombing of the Gaza Strip and militant groups fired rockets at the Jewish state.

The unrest in the the Middle East is “something that’s weighing on sentiment in general,” Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York. “It’s certainly one of several concerns that’s putting pressure on the euro.”

The dollar remained stronger after House Speaker John Boehner said he offered a “framework” including new revenue to reduce the U.S. budget deficit in his first face-to-face talks today with Obama and top Congress leaders since the Nov. 6 election. The leaders will meet again with Obama the week after Thanksgiving, he said.

‘Risk-Negative’

“Investors might be taking a little risk off the table,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “The idea that the two sides are still far apart would likely be a risk-negative development.”

If the U.S. Congress doesn’t act by the end of the year, $607 billion in spending cuts and tax increases are scheduled to take effect starting in January, while the $16.4 trillion debt ceiling must be raised before it’s reached early next year for the nation to continue to borrow.

The dollar held gains even as output at factories, mines and utilities dropped 0.4 percent last month after a revised 0.2 percent increase in September that was smaller than previously estimated, Federal Reserve data showed today in Washington. Economists forecast a 0.2 percent gain, according to the Bloomberg survey median. The Fed said the storm cut total production by almost 1 percentage point.

Japan Elections

The dollar has advanced 1.7 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen dropped 1.7 percent and the euro fell 1 percent.

The yen still registered its steepest weekly drop against the dollar since February on prospects Japan’s opposition party will take power after elections next month and increase pressure on the central bank to expand monetary easing.

The Japanese currency has seen “several days of strong rallies” after Liberal Democratic Party head Shinzo Abe called for the central bank to provide unlimited stimulus, according to Boris Schlossberg, managing director of foreign exchange at BK Asset Management. The yen should continue its upward trend if it stays about at key resistance level at 81.50, he said.

‘Serious Attempt’

“Abe’s stance is the first sign of a serious attempt to realign Japan’s ineffective monetary and exchange-rate policy,” Schlossberg said. “If he is elected the markets will likely give him the benefit of doubt, propping up dollar-yen for the time being.”

Europe’s shared currency pared a weekly advance against the yen as euro-area finance ministers prepared to meet in Brussels on Nov. 20 to discuss ways of plugging the funding gap resulting from granting Greece an extension to reach budget-deficit goals in its bailout program.

“The focus is on Greece and its funding,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “If we see a solution on Greece at the meeting next week then we might see some relief in the euro.”

Europe’s shared currency is likely to stay above its 100- day moving average at $1.2648, analysts at Landesbank Hessen- Thueringen in Frankfurt including Ralf Umlauf wrote in a note to investors today. The currency, which reached a two-month low against the dollar this week, is oversold, according to a stochastic technical indicator, the strategists said, and therefore may stabilize around current levels.

The stochastic oscillator was at 10 today, according to data compiled by Bloomberg, below the 30 threshold that signals the currency may have depreciated too quickly and is poised for a rebound.

A stochastic oscillator chart measures the closing price of a security relative to its highs and lows during a particular period to try to predict whether it will rise or fall.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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


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