Dec. 19 (Bloomberg) -- The dollar touched a three-month high against the
currencies of major U.S. trading partners as the Federal Reserve said the
economy improved while reiterating it will keep borrowing costs low for an
“extended period.”
The euro dropped against the pound as Greece’s credit rating was cut by
Standard & Poor’s and the European Central Bank raised its estimate for
writedowns in nations using the single currency by 13 percent. The dollar
posted its biggest weekly rally since June before an economic report next week
forecast to show an advance in U.S. durable goods.
“This positive outlook from the U.S., from the Fed and much better data we
have been recently seeing are giving you the impetus to get the euro-dollar
lower,” said Emma Lawson, a currency strategist at Morgan Stanley in London, in
an interview on Bloomberg Television.
The Dollar Index, which the ICE futures exchange uses to track the greenback
against the euro, yen, pound, franc, Canadian dollar and Swedish krona, rose
1.5 percent to 77.721 this week, from 76.573 on Dec. 11, the biggest rally
since the five days ended June 5. The index touched 78.141 yesterday, the
highest level since Sept. 4.
The gauge of the dollar has appreciated 4.8 percent from this year’s weakest
level reached on Nov. 26 as government figures showed the U.S. unemployment
rate fell last month to 10 percent and retail sales rose more than forecast.
Before the payrolls report on Dec. 4, the greenback had fallen 20 percent from
the 2009 peak reached in March as evidence of a global economic rebound spurred
investors to buy higher-yielding assets funded with dollars.
‘Better Outlook’
“With that better economic data and better outlook, the U.S. dollar stops
being the funding currency of choice as it was in 2009,” Lawson said.
The dollar appreciated 1.9 percent to $1.4338 per euro, from $1.4615 last
week. It strengthened yesterday beyond $1.43 for the first time since Sept. 4.
The yen strengthened 0.4 percent to 129.75 per euro, from 130.24. The U.S.
currency advanced 1.6 percent to 90.49 yen, from 89.10. The euro decreased 1.3
percent to 88.74 U.K. pence.
Deterioration in the labor market is “abating,” and household spending is
increasing, the Fed said in its statement at the conclusion of its two-day
meeting on Dec. 16. Policy makers held the target rate for overnight lending
between banks at zero to 0.25 percent.
Orders for U.S. durable goods increased 0.5 percent in November after a 0.6
percent drop in the previous month, according to the median forecast of 59
economists in a Bloomberg survey. The report from the Commerce Department is
due Dec. 24.
Weaker Aussie
The Australian dollar was the biggest loser this week against the greenback
among major currencies tracked by Bloomberg, dropping 2.5 percent to 89.02 U.S.
cents. Reserve Bank Deputy Governor Ric Battellino damped expectations for
further rate boosts, saying this week monetary policy is back in “the normal
range.” The bank raised borrowing costs for three straight months beginning in
October.
The yen fell against the dollar this week after the Bank of Japan said it
won’t tolerate consumer price declines, spurring speculation the central bank
will maintain a target lending rate of almost zero.
BOJ Governor Masaaki Shirakawa and his colleagues refrained from announcing
more policy actions, choosing instead to watch the effect of a 10 trillion yen
($111 billion) lending program adopted two weeks ago after the government urged
them to do more to fight deflation. The bank kept the target lending rate at
0.1 percent, as forecast by all 19 economists in a Bloomberg survey.
Euro Versus Franc
The euro dropped 1.1 percent this week to 1.4950 Swiss francs as the Swiss
National Bank refrained from selling the currency, pushing it beyond 1.50
yesterday for the first time since a rally in March that led to an
intervention.
The central bank changed its language on currency purchases at last week’s
quarterly monetary-policy assessment, saying it will act to counter “any
excessive” moves in the franc against the euro. At its September assessment,
the bank said it would “continue to act decisively” to prevent “any”
appreciation.
“It looks like the SNB did change the policy approach in terms of intervention
defending a specific level,” said Shaun Osborne, chief currency strategist at
Toronto-Dominion Bank in Toronto. “The new policy is more geared toward
smoothing out currency moves rather than defending a specific level.”
The franc tumbled 3.3 percent against the euro on March 12, the largest drop
since the common currency debuted in 1999, when the Swiss National Bank
intervened to prevent a strengthening currency from undermining the economy.
The euro weakened versus the dollar this week as the ECB said yesterday banks
may have to write down an additional 187 billion euros ($268 billion) as loans
to property companies and eastern European nations threaten the financial
recovery.
Greece’s credit rating was cut by Standard & Poor’s, and the company
threatened to take further action unless Prime Minister George Papandreou
tackles the European Union’s largest budget deficit.
To contact the reporters on this story: Ben Levisohn in New York at
blevis...@bloomberg.net ; Ye Xie in New York at yx...@bloomberg.net
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