Dollar Touches 14-Month Low as Recovery Signs Spur Risk Demand

By Oliver Biggadike and Lukanyo Mnyanda
Oct. 26 (Bloomberg) -- The dollar reached a 14-month low versus the euro as stocks advanced around the world on confidence that the global economy is recovering, increasing demand for higher-yielding assets.
Brazil’s real and Mexico’s peso were the biggest gainers versus the dollar among the 16 most-traded currencies tracked by Bloomberg. The South Korean won was the best performer among 10 emerging Asian currencies as the nation’s economy grew at the fastest pace in seven years.
“Risk is a little bit positive, and that’s helping the dollar weaken,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “The overall theme of the dollar weakening versus Asia is continuing.”
The dollar traded at $1.5016 per euro at 9:31 a.m. in New York, compared with $1.5008 on Oct. 23. It earlier declined to $1.5063, the weakest level since August 2008. The dollar was at 91.94 yen, compared with 92.06. It earlier reached 92.21, the highest level since Sept. 21. The yen fetched 138.09 per euro, compared with 138.15.
The MSCI World Index of shares climbed 0.2 percent, while the Standard & Poor’s 500 Index increased 0.1 percent.
The dollar declined against 10 of its major counterparts on speculation reports this week will add to evidence that economies are shaking off the worst of the recession.
U.S. Sentiment
The Conference Board’s index of U.S. consumer confidence increased to 53.5 this month from 53.1 in September, a separate Bloomberg survey showed before tomorrow’s report. A gauge of French household sentiment improved to minus 35 in October from minus 36 last month, a Bloomberg economist survey showed before the Paris-based national statistics office reports tomorrow.
Brazil’s real advanced 0.7 percent to 1.7055 versus the dollar, while the peso gained 0.5 percent to 13.0273.
The pound traded near the lowest level in at least a week against the euro and dollar on speculation the Bank of England will boost asset purchases at its policy meeting next month. The currency fell even as a survey of senior executives by Opinion Leader Research for KPMG showed confidence rose to the highest level in 18 months.
Sterling lost as much as 0.4 percent to 92.40 pence per euro, the weakest level since Oct. 15, and was later little changed at 91.97. Against the dollar, it traded as low as $1.6252, the least since Oct. 19, and was later at $1.6324.
Chinese Reserves
The yen and euro earlier gained versus the dollar after China’s Financial News said the nation should boost reserves in the currencies. The Beijing- based newspaper, which is affiliated with China’s central bank, said the nation should raise the amount of Japanese and European currencies while keeping the dollar as the main component.
“The Chinese article revived concern over the status of the dollar and triggered knee-jerk selling of the greenback,” said Yuichiro Harada, senior vice president of the foreign- exchange division at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest lender.
China is the biggest international owner of U.S. government debt followed by Japan. The nation’s foreign-exchange reserves, the world’s largest, surged in the third quarter as an economic recovery attracted speculative capital and a weakened dollar boosted valuations of its yen and euro assets. The holdings climbed about $141 billion to a record $2.273 trillion, the central bank said this month.
Stronger Won
South Korea’s won increased after a higher-than-forecast expansion in its economy spurred expectations its central bank will raise borrowing costs.
Gross domestic product advanced 2.9 percent in the third quarter from three months earlier, the central bank said today in Seoul. That was the fastest since the first quarter of 2002 and compared with a median estimate of 1.9 percent growth in a Bloomberg survey.
The won appreciated 0.3 percent against the dollar to 1,177.90, from 1,181.25.
The dollar earlier traded at the highest level in more than a month versus the yen on speculation the Federal Reserve will boost interest rates sooner than some economists forecast. The Wall Street Journal said Fed officials are likely to discuss next month how and when to signal the possibility of higher U.S. interest rates.
Members of the U.S. central bank are contemplating the best way to let the market know that a period of record-low rates will draw to an end, the Journal reported Oct. 24, without saying where it got the information. The issue may be “on the table” when the Federal Open Market Committee meets Nov. 3-4.
The Fed will increase the target rate for overnight bank loans to 0.5 percent in the second quarter of 2010, according to the average forecast of economists in a Bloomberg survey. The Bank of Japan is projected to maintain interest rates through the end of next year.
Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., making the yen and dollar favored targets for investors seeking to fund so-called carry trades. The risk in such transactions is that currency-market moves will erase profits.
To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net