Dollar Declines Amid Demand for Currencies Offering Higher-Yielding Assets
Dec. 21 (Bloomberg) -- Vassili Serebriakov, a currency strategist at Wells Fargo & Co., discusses the outlook for the U.S. dollar. Serebriakov, speaking with Erik Schatzker on Bloomberg Television's "InsideTrack," also discusses China's backing of the European Union's efforts to ensure financial stability and expectations for the Swiss Franc. (Source: Bloomberg)
Dec. 29 (Bloomberg) -- Vassili Serebriakov, a currency strategist at Wells Fargo & Co., and David Mann, head of currency research at Standard Chartered Bank, talk about the outlook for currency markets in 2011. Serebriakov and Mann also discuss the U.S. dollar, euro, China's yuan and their investment strategies. They talk with Carol Massar on Bloomberg Television's "Street Smart." (Source: Bloomberg)
The dollar fell against most of its major counterparts as economic data signaled the world’s largest economy is accelerating into the new year, encouraging demand for currencies in nations with higher-yielding assets.
The U.S. currency weakened after economic reports showed business expansion, fewer jobless claims and more pending home sales. Canada’s currency traded above parity with the greenback for the third day. The Swiss franc climbed to a record versus the euro, pound and dollar. The International Monetary Fund announced it decreased the weight the dollar and yen make up in the basket that makes up its currency unit.
“The market prefers to be in currencies that are driven by fundamentals and that’s buying commodity currencies,” said John McCarthy, director of currency trading at ING Groep NV in New York. “The data, which one would ultimately assume is positive for the U.S., looks better for risk, which in turn puts downward pressure on the dollar.”
The dollar weakened 0.5 percent to $1.3291 per euro at 5:01 p.m. in New York, from $1.3225 yesterday. It fell 0.1 percent to 81.53 yen after touching 81.29 yen, the lowest since Nov. 9, from 81.62 yen yesterday.
The U.S. currency declined 1.1 percent against the franc to 93.53 centimes from 94.56 centimes, after touching a record low of 93.51 centimes. The franc appreciated as much as 0.8 percent to a record 1.2402 against the euro and as much as 1.7 percent to 1.4402 per pound.
IMF Basket
The IMF said the value of its Special Drawing Right, the institution’s currency unit, will amount to the sum of $0.66, 0.423 euro, 0.111 British pound and 12.1 yen. The announcement made today results from a review last month.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the dollar against the currencies of six major U.S. trading partners, slipped 0.4 percent to 79.499. The measure is headed for a 2.1 percent gain in 2010.
Business in the U.S. expanded in December at the fastest pace in 22 years. The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 68.6 this month, exceeded the most optimistic forecast of economists surveyed by Bloomberg News and the highest level since July 1988.
Initial U.S. jobless claims fell last week to the lowest level since July 2008, a sign that the labor market is improving heading into 2011. The number of contracts to buy previously owned homes in the U.S. rose last month for the fourth time in five months, the National Association of Realtors reported.
Brazil’s real was among the best performing currency against the U.S. dollar today, surging as much as 1.1 percent to 1.6600 per dollar as the nation’s central bank said it would buy dollars in the spot market today. The currency headed for its second straight year of gains against the dollar, rising 5.1 percent. It has increased 39 percent since 2008.
Brazil Reaction
“The Brazilians are uncomfortable every time we’ve seen the real strengthen,” said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York.
Brazil’s benchmark interest rate is 10.75 percent after the central bank raised borrowing costs 2 percentage points this year to try to curb foreign investment.
South Korea’s won gained the most in two months versus the dollar as the nation’s central bank forecast its current-account surplus will widen. The nation’s industrial output expanded 10.4 percent in November from a year earlier, its 17th straight increase, Statistics Korea said in Gwacheon today.
South Korea’s currency rose for a fourth day, gaining 1 percent, the most since Oct. 6, to 1,134.85 per dollar.
The dollar will keep its reserve status in 2011 because China and Europe aren’t developed enough for their currencies to replace it, said Pacific Investment Management Co., which runs the world’s biggest bond fund.
Reserve Status
“Rising powers such as China are not yet ready to absorb the $9 trillion in reserve assets the world holds, particularly because their bond markets are immature,” Anthony Crescenzi, a money manager at Pimco in Newport Beach, California, wrote in a report yesterday. “Europe, amid all of its financial woes, isn’t even close to ready to take the mantle.”
Europe’s 16-nation currency, which will add Estonia to its members in January, headed for a 10.5 percent decline in 2010, according to the Bloomberg Correlation-Weighted Indexes. The gauge tracks the performance of 10 developed-world currencies. The index shows the dollar down 2.8 percent and the yen up 12.6 percent.
The euro has been the worst-performing major currency against the dollar in 2010, sliding 7.2 percent. Economists surveyed by Bloomberg forecast the shared currency slipping to $1.31 by the end of 2011. Its performance is followed by the pound, which is headed for a loss 4.6 percent.
Big Win
The biggest winner against the greenback this year has been the yen soaring 14.1 percent. The median estimate by 36 economists sees the Japanese currency retracing to 90 in the fourth quarter of next year.
The Australian dollar was the second-best performer against the greenback, climbing 13.3 percent. Today it touched the strongest level against the U.S. currency since it became free- floating in 1983.
The Swiss franc jumped on bets the nation’s economy will outperform rivals and its central bank may increase interest rates before the European Central Bank or Federal Reserve.
The nation’s leading economic indicator, which aims to predict the economy’s direction about six months ahead, was 2.1 in December, the KOF research institute in Zurich said yesterday, matching analyst estimates. The 10-year average for the gauge is 1.13.
Canada’s currency traded stronger than parity for the third consecutive day as U.S. business, the largest destination for the country’s exports, picked up. Interest rates are 1 percent in Canada compared with the near zero in the U.S.
The loonie gained as much as 0.2 percent to 99.91 cents per U.S. dollar.
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