Dollar Falls to Record Versus Euro, Three-Year Low Against Yen

The dollar fell to a record low against the euro and the weakest in almost three years versus the yen after Federal Reserve Chairman Ben S. Bernanke highlighted risks to the economy and credit-market losses spread.

The currency declined for a seventh day against the euro after Bernanke told a Senate panel that a housing slump may cause smaller U.S. banks to fail and unemployment to increase. The yen rose against the South African rand and Australian dollar as Asian stocks declined, prompting investors to reduce holdings of higher-yielding assets funded with loans in Japan.

``This is the Bernanke shock, causing much faster dollar depreciation than expected,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded lender by assets.

The dollar slumped to 104.28 yen, the weakest since May 2005, before trading at 104.33 as of 7:53 a.m. in London, from 105.37 late in New York yesterday and 107.17 a week ago. It fell to $1.5239 per euro, the lowest since the 13-nation currency was formed in 1999, from $1.5193 yesterday.

The U.S. Dollar Index, which tracks the currency against six major counterparts, yesterday touched 73.63, the lowest since its start in 1973. The index, traded on ICE Futures in New York, traded at 73.815. The euro is 30 percent above its debut level against the dollar, and up 84 percent from a record low of 82.30 U.S. cents in October 2000.

Read more:Dollar Falls to Record Versus Euro, Three-Year Low Against Yen

Euro Rises After Ifo Survey Shows German Confidence Improved

The euro rose against the dollar and the yen, reversing earlier declines, after a private report showed German business confidence unexpectedly strengthened for a second month in February.

The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, increased to 104.1, from 103.4 in January. Economists had forecast a drop to 102.9, according to the median of 45 estimates in a Bloomberg News survey.

``Markets have this sense that while the euro zone has been hit by the slowdown in the U.S., thing are not quite as bad as they seem,'' said Steve Barrow, chief currency strategist in London at Bear Stearns Cos., the fifth-largest U.S. securities firm. ``That's proven positive as far as the euro is concerned.''

read more:

Euro Rises After Ifo Survey Shows German Confidence Improved

Asian Currencies Rise, Led by Taiwan Dollar, as Stocks Rally

Asian currencies rose, led by the Taiwan dollar and South Korea's won, on speculation rising stocks will lure overseas investors to the region's assets.

Taiwan's currency traded near its highest in 20 months as overseas investors bought NT$6.21 billion ($196 million) more of the island's stocks than they sold today, compared with NT$2.42 billion yesterday, according to Stock Exchange. The won rose after a government report yesterday showed unemployment fell to the lowest rate in more than five years last month.

``There were quite a lot of foreign fund inflows,'' said Henry Lin, a currency trader at Shin Kong Commercial Bank in Taipei. ``The foreign-exchange market has been quite clearly taking cues from stocks.''

Taiwan's dollar rose 0.2 percent to NT$31.698 as of 4:31 p.m. local time, from NT$31.746 yesterday, according to Taipei Forex Inc. The won climbed to 943.85, compared with 945.30 yesterday, according to Seoul Money Brokerage Services Ltd.

Asian Currencies Rise, Led by Taiwan Dollar, as Stocks Rally

Dollar Falls as Housing Reports May Bolster Case for Fed Cuts

The dollar fell against 15 of the 16 most-active currencies on concern industry and government reports will show the housing recession in the U.S. is deepening.

The U.S. currency declined to a two-week low against the euro on speculation the Federal Reserve will keep cutting its benchmark interest rate from 3 percent. Australia's dollar rose to a three-month high after the nation's central bank said it considered a larger increase when raising borrowing costs to an 11-year high of 7 percent this month.

``We think there's a chance we'll break $1.48 against the euro on the expectation the U.S. will cut rates,'' said Chris Furness, head of currency strategy in London at 4Cast Ltd., a research company that counts central banks among its subscribers. ``We still have a problem. We don't know whether it's going to be recession or not.''

The dollar fell to $1.4742 per euro, the lowest since Feb. 5, and traded at $1.4726 as of 8:45 a.m. in London, from $1.4658 in New York yesterday. It weakened to 107.86 yen from 108.23 yen. The euro was at 158.90 yen, from 158.63.

Japan's currency also advanced against the dollar, or greenback, on speculation that China's central bank will raise borrowing costs and seek a stronger exchange rate to curb the fastest inflation in more than 11 years.

The U.S. currency fell 0.7 percent to 91.97 cents versus Australia's dollar, reaching the lowest since Nov. 9. The U.S. greenback also declined against the New Zealand dollar to 79.79 U.S. cents, near the lowest since July 26, from 79.52 yesterday.

Australian Dollar

The Australian dollar rose versus all 16 major currencies after central bank Assistant Governor Malcolm Edey said inflation may accelerate.

Minutes from the Reserve Bank of Australia's Feb. 5 meeting published today showed Governor Glenn Stevens and his colleagues discussed raising the benchmark rate by 50 basis points to cool the fastest inflation in almost two decades.

``The discussion about monetary policy in the minutes had a much sharper sting in the tail as far as the near-term rate outlook is concerned,'' wrote David de Garis, senior markets economist at National Australia Bank Ltd. in Sydney, in a note to clients. ``We still expect a 25 basis-point increase in March and a 40 percent chance of another.''

The yield advantage on Australian two-year bonds over similar-maturity U.S. Treasuries increased to 5.09 percentage points, the widest since December 1990.

The U.S. dollar dropped 5.1 percent versus the euro since the Federal Reserve started to cut interest rates on Sept. 18, the fourth-worst performer among the 16 most-active currencies.

`Sense of Vigilance'

``The markets have a heightened sense of vigilance before the U.S. housing data and are selling dollars,'' said Kenichiro Fujita, manager of derivatives-marketing in Tokyo at Aozora Bank Ltd., Japan's ninth-largest publicly traded lender by assets. ``The Fed will cut rates to 2 percent to support the economy and to avoid criticism that it always falls behind the curve.''

Dollar Falls as Housing Reports May Bolster Case for Fed Cuts

Yuan to Rise Versus Major Currencies, Researcher Says

China will shift focus to managing the yuan's exchange rate against currencies of its biggest trading partners and not just the dollar, allowing for a broader appreciation, former central bank adviser Li Yang said.

China's currency has fallen 6 percent against the euro since a link to the dollar was scrapped in 2005, prompting calls from European officials including French President Nicholas Sarkozy to allow faster gains. Some U.S. lawmakers also claim the yuan is kept undervalued to make exports competitive, and have threatened sanctions unless it extends a 15 percent gain versus the dollar since the peg ended.

There's a ``shift in how the central bank will be watching the rate and the focus of its policy target,'' Li, head of financial research at the Chinese Academy of Social Sciences in Beijing, said in a Feb. 14 interview. The central bank will focus on a trade-weighted ``effective'' exchange rate, he said.

Gains in the yuan against more currencies may help China slow growth in its trade surplus, which has flooded the economy with cash and driven inflation to an 11-year high. Gross domestic product grew 11.4 percent in 2007 from a year earlier, the fastest pace in 13 years, driven by exports and investment.

The yuan fell as much as 0.6 percent against the dollar in the first day of trading after a week-long holiday on Feb. 13, the biggest loss since the peg ended. The currency rebounded as the China Securities Journal cited unnamed experts on Feb. 14 saying the yuan will rise against major currencies this year.
read more:Yuan to Rise Versus Major Currencies, Researcher Says

Dollar feels weight of rate talk

The dollar suffered against the euro this week after comments from Ben Bernanke, chairman of the Federal Reserve, cemented expectations for further cuts in US interest rates.

In testimony before US Congress on Thursday, Mr Bernanke reiterated the downside risks to US economic growth and said the Fed stood ready to take action in response, underlining the central bank’s willingness to loosen US monetary policy further.

Mr Bernanke said a significant worsening in financial conditions or in credit availability “would certainly be a warning bell that we need to take further action”.

But Mr Bernanke also said he expected a stronger pace of US growth to start later this year as the effects of recent monetary and fiscal stimuli began to be felt.

Ashley Davies at UBS said he believed the dollar would likely benefit in the longer run, although currency markets chose to focus on the prospects for imminent rate cuts rather than a US recovery in the short term.

“With downside risks to growth in the US already largely priced into the dollar, but eurozone data deteriorating and therefore justifying monetary easing, we look for euro/dollar to trade down to $1.43 over the next three months,” he said.

read more:Dollar feels weight of rate talk

Dollar May Rebound to 110 Yen Options Show, MUFG's Miki Says

Currency options show the dollar may rebound to around 110 yen in the next few weeks, said Takeharu Miki, currency options manager in Tokyo at Bank of Tokyo- Mitsubishi UFJ Ltd.

The spread between the one-month and one-year risk reversal rate has started to narrow, showing options traders are speculating less on a decline in the U.S. currency, Miki said. Risk reversals are the difference between the cost for call options, which grant the right to buy a currency at a fixed price, and puts, which allow sales.

``I'm watching this term structure because it's all about sentiment,'' Miki from the unit of Japan's biggest publicly traded lender, said in an interview in Tokyo. ``This spread will narrow when the dollar starts to recover. I see the potential for a rise in the currency.''

The dollar traded at 108.24 yen at 6:05 a.m. in London from 108.33 late yesterday in New York, when it rose to a one-month high of 108.38. The U.S. currency has gained 1.6 percent against the yen since the start of this month. It fell 10.5 percent over the past year.

The one-year 25-delta risk reversal rate for dollar-yen options was 1.275 percentage points more than the one-month rate today, down from an almost four-year high of 2 percentage points on Dec. 7. Delta measures the change in the price of an option relative to moves in the underlying currency.

Read more:Dollar May Rebound to 110 Yen Options Show, MUFG's Miki Says

Australian Dollar Rises, Bonds Decline as Jobs Beat Forecasts

The Australian dollar rose and bonds declined after a government report showed the unemployment rate fell to the lowest since 1974, spurring traders to add to bets the Reserve Bank of Australia will raise interest rates in March.

The local dollar, known as the Aussie, climbed against all of the 16 most-traded currencies on prospects higher borrowing costs will encourage investors to funnel funds into Australian dollar-denominated assets. The yield advantage on Australia's two-year government notes over similar-maturity U.S. Treasuries widened to 4.99 percentage points, the most since 1990.

``The data highlights a very high risk that the RBA will be forced to follow up its February rate hike with one in March,'' said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney. ``There's a bias to play a long Aussie'' versus New Zealand's dollar, she said. A long position is a bet on an asset price's gain.

The Australian dollar rose to 90.28 U.S. cents as of 5:19 p.m. in Sydney from 89.78 cents immediately before the report was issued and 89.86 cents in late Asian trading yesterday. It climbed to NZ$1.1481 versus NZ$1.1422.

The local dollar may advance to as high as 93 cents and NZ$1.20 within three months, Trinh forecast.

The Bureau of Statistics said in Sydney the number of people employed climbed 26,800 in January, beating estimates of economists surveyed by Bloomberg News for 15,000 new jobs. The jobless rate fell to 4.1 percent from 4.3 percent.

``The economy seems to be doing pretty well,'' said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. ``I'd like to see the Aussie on the upside.''

Read more:Australian Dollar Rises, Bonds Decline as Jobs Beat Forecasts

Yen Rises as AIG Losses Prompt Investors to Trim Carry Trades

The yen rose against 13 of the world's 16 most-active currencies as widening credit-market losses spurred investors to reduce holdings of higher-yielding assets financed in Japan.

The currency gained against the New Zealand dollar and the Norwegian krone as traders reduced so-called carry trades. American International Group Inc., the world's largest insurer by assets, said it may have underestimated a decline in the value of derivative holdings. The euro traded near a three-week low versus the dollar before a report that will probably show the weakest German investor confidence in 15 years.

``I am quite yen-bullish,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded lender by assets. ``Subprime debt problems are far from over. The markets will remain shaky, buoying the yen.''
read more:Yen Rises as AIG Losses Prompt Investors to Trim Carry Trades

Australia bucks world trend with rate rise

Australia’s strong economic growth, driven by commodity exports to China and other fast-growing economies, was underlined on Tuesday when interest rates were pushed to their highest in nearly 12 years in an effort to contain inflation.
The Reserve Bank of Australia’s 25 basis point rise in the benchmark cash rate to 7 per cent, the third rise in six months, comes as many developed nations are cutting rates as economies slow.
Australia, now in its 17th year of uninterrupted growth, is out of alignment with the US. Gross domestic product is forecast to grow more than 4 per cent this year, spurred by commodities sales and a rebound in agricultural exports.
Australia’s growing reliance on its nearest neighbours in Asia was emphasised on Tuesday in comments by Yang Jiechi, China’s foreign minister, who was visiting Canberra to mark the start of annual talks on regional strategic issues.

read more:Australia bucks world trend with rate rise

Euro May Weaken to $1.4310 on Technical Charts, Citigroup Says

The euro may weaken to $1.4310 against the dollar after it fell below so-called support at about $1.4670, according to Citigroup Global Markets Inc.

The euro yesterday dropped below $1.4670, which represents the currency's 55-day moving average and is an area where buy orders are likely to be placed. The next target of $1.4310 was the previous lower range of euro-dollar levels in December.

``The fall through the 55-day moving average adds further strength to the bearish outlook here and opens the way for the pair to fall to the base of the range at $1.4310 in the short term,'' analysts led by New York-based global head of currency strategy Tom Fitzpatrick wrote in a research note yesterday.

The 15-nation currency was at $1.4639 per dollar at 10:12 a.m. in Tokyo, from $1.4647 late yesterday in New York. It fell to $1.4311 on Dec. 20, and last dropped below $1.4310 on Oct. 25.

The euro yesterday fell below the 55-day moving average, at $1.4665 today, for the first time since early September. That signaled the euro is likely to remain weak in the short term.

Traders often look for signs of a currency's short-term trend by viewing the five-day moving average, and forecast longer-term trends with the 21-day and 55-day moving average. They use moving averages to identify levels of support, where buying is expected, or resistance, where selling is forecast.

read more:Euro May Weaken to $1.4310 on Technical Charts, Citigroup Says

Canada's Dollar Falls on U.S. Economy Outlook, Commodity Demand

Canada's currency fell the most in a month on concern that a U.S. recession will reduce demand for Canadian commodity exports.

Traders sold currencies of commodity-exporting countries as the U.S. economy falters and data from Europe suggested the international economy may face a slowdown.

``A fear of a possible U.S. recession is taking its toll on commodity currencies,'' said Andrew Chaveriat, a technical foreign-exchange strategist at BNP Paribas Securities SA in New York. ``The U.S. dollar is going to continue this rally as people avoid risky bets, and we may see some weakness in the Canadian dollar.''

Canada's currency, known as the loonie after the image of the bird on its one-dollar coin, fell 1.3 percent, the most since Jan. 4, to C$1.0068 per U.S. dollar at 4:30 p.m. in Toronto. One Canadian dollar buys 99.33 U.S. cents.

Prices of the nation's commodity exports also declined. Crude oil for March delivery fell $1.61, or 2 percent, to $88.41 a barrel. Gold for immediate delivery dropped $14.20, or 1.6 percent, to $895.20 an ounce. Commodities account for about half of Canada's exports.

The currency is lower today against 12 of the 16 major currencies, led by the Brazilian real and the Taiwanese dollar. It extended its losses after a report from the U.S. showed service industries unexpectedly shrank in January at the fastest pace since the last recession, as the housing slump deepened and consumer spending cooled. The U.S. consumes about 80 percent of Canada's exports.

Damage Assessment

``The Canadian dollar may be an underperformer for the short run,'' said Steve Butler, a director of foreign exchange trading at Scotia Capital Inc. in Toronto. ``The market is trying to figure out how much damage the U.S. recession is going to have on the Canadian economy.''

Canadian bonds rose and yields fell as declining equity prices worldwide encouraged investors to buy safe-haven government securities. The yield on the two-year Canadian bond is close to its lowest since 2005.

Earlier, reports from the euro zone showed service industries grew at the slowest pace in more than four years and retail sales dropped the most since 1995.

read more:Canada's Dollar Falls on U.S. Economy Outlook, Commodity Demand

Bank of England May Cut Interest Rate a Quarter Point to 5.25%

The Bank of England will probably cut its key interest rate for the second time in three months this week, setting aside concern that inflation will accelerate as economic growth slows, a survey showed.

The nine-member Monetary Policy Committee will lower the rate by a quarter point to 5.25 percent on Feb. 7, according to 58 of the 61 economists in a Bloomberg News survey. Two expect a half-point cut and one forecasts no change.

Falling house prices and higher market lending rates have put the U.K. economy on course for its worst performance since the end of the last recession in 1992. At the same time, Governor Mervyn King has indicated inflation pressures will keep the bank from following the Federal Reserve and slashing rates further in coming months.

``There is clearly a sense at the bank that rates are restrictive and need to come down,'' said Matthew Sharratt, an economist at Bank of America Corp. in London. ``Worries about inflation mean there won't be the same kind of aggressive easing as we've been seeing from the Fed.''
read more:Bank of England May Cut Interest Rate a Quarter Point to 5.25%

Yen Falls as Stock Gains Spur Investors to Seek Higher Yields

The yen fell against all 16 of the most-active currencies as a rally in Asian stocks prompted investors to purchase higher-yielding assets funded in Japan.

The currency dropped the most versus Norway's krone, a favorite for so-called carry trades, before a U.S. government factory orders report that may show business spending is holding up in the world's biggest economy. The euro rose on speculation the European Central Bank will keep interest rates at a six-year high this week.

``The U.S. probably won't fall into a recession, supported by a strong corporate sector,'' said Koji Fukaya, a senior currency strategist at Deutsche Securities, the Tokyo unit of Deutsche Bank AG, the world's largest currency trader. ``There are expectations stocks have already bottomed out. This is leading to yen-selling.''

The yen declined to 158.22 per euro as of 7:52 a.m. in London from 157.67 late in New York on Feb. 1. It was at 106.76 versus the dollar from 106.49. The currency may fall to 110 per dollar by the end of March, Fukaya said.

The yen slumped to a three-week low against the Australian dollar, weakening 0.5 percent to 96.76. It dropped 0.7 percent to 19.7005 versus the Norwegian krone and declined 0.6 percent to 210.47 to the British pound.
read more:Yen Falls as Stock Gains Spur Investors to Seek Higher Yields