-- The dollar, yen and Swiss franc rallied as investors shunned stocks and bonds in nations that provide higher returns amid concern over credit-market losses.
Norwegian, Canadian and Australian currencies fell the most this week as investors pared investments funded by loans in Japan and Switzerland. The dollar rose for the first week in six against a basket of major currencies as traders sought haven in Treasuries. Officials from Europe and Canada are expected to request faster gains in the Chinese yuan tomorrow, pushing the currency to share in the burden of a weakening U.S. dollar.
``People may be reluctant to dive into risky assets,'' said Michael Malpede, a senior currency analyst in Chicago at Man Global Research, part of MF Global Ltd., the world's largest broker of exchange-traded futures and options contacts. ``No one has a handle on how deep the subprime and credit problem is.''
The dollar gained 0.1 percent this week to $1.4662 per euro, rebounding from a record low of $1.4752 on Nov. 9. The yen fell 0.4 percent this week to 111.09 per dollar. Japan's currency declined 0.2 percent to 162.86 against the euro.
The U.S. Dollar Index traded on ICE Futures U.S. in New York rose 0.6 percent this week to 75.827. It rebounded from 74.978 on Nov. 9, the weakest since the index began in 1973. The dollar has dropped 10 percent against the euro and 6.7 percent versus the yen this year as the two interest-rate reductions from the Federal Reserve pushed investors away from U.S. assets.
Norway's Krone
Norway's krone was the biggest loser this week among major currencies, weakening 3 percent against the dollar and 2.7 percent versus the yen. Canada's dollar declined 2.9 percent against the U.S. currency. The Australian currency fell 2 percent against the dollar.
The Swiss franc gained for a fifth week, rising 0.4 percent against the dollar and touching 1.1161, the highest since 1995. The franc also increased 0.5 percent versus the euro this week.
The pound fell 1.6 percent against the euro and reached the weakest since 2003 as speculation increased the Bank of England may need to cut interest rates from 5.75 percent as early as next month. Against the dollar, the pound lost 1.7 percent this week.
The yen and franc are used by investors to finance investments in markets with higher returns because interest rates in those countries are among the lowest in the industrialized world. Japan's benchmark rate is 0.5 percent and Switzerland's is 2.75 percent. When risk aversion returned, investors bought the low-yielding yen and franc to pay back their loans, boosting demand for the currencies.
The world's largest securities firms and banks have announced more than $50 billion of writedowns related to losses on subprime mortgages over the past two months.
Dollar Weakness
The U.S. currency has dropped about 11 percent so far this year, based on the Fed's U.S. Trade-Weighted Major Currency Index. It fell this month to its weakest against the euro since the European currency's debut in 1999, the lowest against Canada's dollar since it was floated in 1950 and to a 26-year low versus the pound.
Reports next week may show the National Association of Home Builders/Wells Fargo index of builder sentiment dropped to 17 this month from 18 in October, while housing starts last month slowed to an annualized rate of 1.17 million from 1.19 million in September, according to Bloomberg News surveys.
``Our underlying view is that the dollar will continue to weaken in the short term,'' said Meg Browne, a currency strategist at Brown Brothers Harriman & Co. in New York. ``There're a lot of uncertainties about the economy.''
Fed Minutes
The Fed is scheduled to release its minutes from the Oct. 31 meeting on Nov. 20. The central bank cut the target rate for overnight loans between banks to 4.5 percent last month, following a 50-basis-point reduction in September. Interest-rate futures traded on the Chicago Board of Trade show 86 percent odds policy makers may lower rates to 4.25 percent on Dec. 11, their last meeting this year.
U.S. Treasury Secretary Henry Paulson, who is on a six-day tour of Africa, said Nov. 15 he expected to discuss exchange rates at the two-day meeting of the G-20, which starts today in Cape Town, South Africa. The group includes the largest developed nations and emerging markets such as China and India.
``The long-term strength of the U.S. economy will be reflected in the currency,'' Paulson said in an interview with Johannesburg's 702 Radio yesterday. Paulson has repeated the ``strong dollar'' policy over the past two weeks.
Yuan Appreciation
European, Canadian and Japanese officials have criticized volatility in exchange rates and urged China to allow a faster pace of appreciation in the yuan to share in the burden of a weakening dollar. The rise in local currencies against the dollar is making exports less competitive and threatening growth.
The Chinese yuan fell 0.2 percent against the dollar this week, trading at 7.4239 per dollar.
European Central Bank President Jean-Claude Trichet said Nov. 8 ``brutal'' currency moves are ``never welcome,'' reprising language he last used when the euro climbed in 2004. Bank of Canada Senior Deputy Governor Paul Jenkins said Nov. 14 that the U.S. currency's drop threatens ``rising protectionist sentiment.''
The U.S. hasn't intervened to buy dollars since August 1995, while Japan hasn't acted in markets since March 2004. The Group of Seven nations last intervened together in September 2000 to buoy the euro.
Europe's single currency will trade at $1.45 by year-end, according to the median forecast of 45 analysts and brokerages surveyed by Bloomberg News.
No comments:
Post a Comment