Dollar Trades at Almost 15-Month Low After Fed Pledges Support
Nov. 17 (Bloomberg) -- The dollar traded at almost a 15-month low against the currencies of major U.S. trading partnersas investors questioned Federal Reserve Chairman Ben S.Bernanke’s pledge of support for the greenback.
The U.S. currency touched an intraday high of $1.4881against the euro as Bernanke said yesterday in a New York speechthat the Fed is “attentive” to changes in its value and “willhelp ensure that the dollar is strong.” The greenback resumedits slide within 10 minutes on speculation the Fed will have tokeep interest rates near zero to support the economy,discouraging demand for the currency.
“Bernanke is going out of his way to provide verbalsupport for the dollar,” said Alan Ruskin, head ofinternational currency strategy in North America at Royal Bankof Scotland Group Plc in Stamford, Connecticut. “At the sametime, he still sees challenges for the economy and will hold therate low for a long time. It’s hard to conceive how he’s goingto ensure policies to support the dollar.”
The Dollar Index, which IntercontinentalExchange Inc. usesto track the greenback’s value against the euro, yen, pound,Canadian dollar, Swiss franc and Swedish krona, was at 74.896 at7:01 a.m. in Tokyo, following a 0.6 percent drop yesterday. Ittouched 74.679, the lowest level since August 2008.
Economic “headwinds” of reduced bank lending and a weaklabor market will probably restrain the pace of the U.S.economic recovery and warrant continued low borrowing costs,Bernanke also said in a speech to the Economic Club of New York.
Dollar Versus Euro
The dollar declined 0.5 percent to $1.4974 per euro, from$1.4903 on Nov. 13. It touched $1.5016 yesterday and $1.5063 onOct. 26, the weakest level in 15 months. The euro decreased 0.2percent to 133.32 yen, from 133.63. The dollar slid 0.6 percentto 89.12 yen, from 89.66. It touched 88.76, the lowest levelsince Oct. 9, within two hours of the start of Bernanke’s 12:15p.m. speech.
The U.S. currency appreciated to $1.2330 per euro inOctober 2008, the strongest level in almost three years, asinvestors took refuge in Treasuries as the global economyplunged into recession. The dollar has lost 18 percent sincethen as evidence of a recovery revived demand for riskier assetssuch as stocks.
Norway’s krone gained 1 percent to 5.5587 per dollar andthe Brazilian real climbed 0.6 percent to 1.7122 yesterday onspeculation investors will increase carry trades, in which theysell the currency of a nation with low borrowing costs and buyassets where returns are higher. Interest rates as low as zeroin the U.S. make the dollar a favored currency for investorsseeking to fund such transactions.
‘Attentive’ Reiteration
Bernanke used the phrase “attentive” in a previous speechon June 3, 2008, and said yesterday that the Fed “will helpensure that the dollar is strong and a source of globalfinancial stability.” In the earlier speech, Bernankereiterated the Fed’s commitment to price stability and theeffect of fluctuations in the dollar on inflation.
“Perhaps the reference to stability is a hint that herealizes a weak dollar might become a systemic risk and affectother assets,” said Richard Franulovich, a senior currencystrategist at Westpac Banking Corp. in New York. “The weakdollar has been a source of angst for many people.”
China’s Ministry of Commerce said earlier yesterday thatinternational pressure for appreciation in the yuan was “notfair” as U.S. President Barack Obama started a four-day visitcalling for a more balanced relationship between the nations.
‘Not Fair’
Seeking a stronger Chinese currency as the dollar weakens“is not conducive to a global economic recovery and is notfair,” a ministry spokesman, Yao Jian, said at a press briefingin Beijing yesterday. Zhu Guangyao, China’s assistant financeminister, criticized the fiscal and monetary policies of “key”reserve-currency countries, saying they aren’t responsible andfail to consider the effect on other nations.
The Dollar Index extended its slide through Asian andEuropean trading before Bernanke’s speech caused a brief surgeto just below yesterday’s close. The yuan traded at about 6.83per dollar since July 2008 after a 21 percent gain in theprevious three years.
“These comments by the Chinese always lead to declines inthe dollar, and that’s currently exactly what they want,” saidLutz Karpowitz, a currency analyst at Commerzbank AG inFrankfurt. “They want a weaker dollar so that their currencycan decline along with the dollar.”
The link of the yuan to the weakening dollar has pushed theChinese currency down 16 percent versus the euro and 8 percentagainst the yen over the past year, adding to pressure fromChina’s export competitors to let the yuan appreciate.
To contact the reporters on this story:Ye Xie in New York at yxie6@bloomberg.net;Oliver Biggadike in New York at obiggadike@bloomberg.net
Last Updated: November 16, 2009 17:03 ESTSource: Bloomberg
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