Wednesday, April 30, 2008

Dollar Rises to Three-Week High on Bets Fed Will Signal Pause

Dollar Rises to Three-Week High on Bets Fed Will Signal Pause

April 29 (Bloomberg) -- The dollar strengthened to a three- week high against the euro on speculation the Federal Reserve will signal that it's done lowering interest rates.

The currency is headed for its first monthly advance against the euro this year, and also gained versus the Norwegian krone and pound today, as interest-rate futures show the Fed may lower borrowing costs tomorrow and then pause. The pound is poised for its biggest monthly decline against the dollar in 2008 as mortgage approvals in the U.K. sank.

``If the Fed is not at the end of the easing cycle, it's near the end,'' said Jeff Gladstein, global head of foreign- exchange trading at AIG Financial Products in Wilton, Connecticut. ``I don't think the dollar will strengthen aggressively by any stretch, but I do think it's trying to bottom.''

The dollar rose 0.4 percent to $1.5596 per euro at 10:26 a.m. in New York, from $1.5657 yesterday. It touched $1.5541, the strongest level since April 3. The dollar declined 0.8 percent to 103.33 yen, from 104.19 yesterday. The euro weakened 1.2 percent to 161.20 yen, from 163.11.

The U.S. currency has increased 4 percent against the yen and 1.4 percent versus the euro this month. The dollar fell to $1.6019 against the euro on April 22, the lowest level since the European currency debuted in 1999.

Futures on the Chicago Board of Trade show an 82 percent chance the Fed will cut the target rate for overnight lending by a quarter-percentage point to 2 percent and a 71 percent likelihood that the rate will be held at that level in June.

New Zealand Dollar

New Zealand's dollar weakened against all of the major currencies after a government report showed the annual trade deficit unexpectedly widened in March. The kiwi declined 1.5 percent to 77.42 U.S. cents after touching 77.27, the lowest level since Jan. 28.

Australia's dollar dropped 0.8 percent to 93.12 U.S. cents after the New York-based Conference Board's Australian index of leading economic indicators fell in February for a third month.

The pound weakened today after the Bank of England said banks granted 64,000 loans for house purchases in March, the lowest level in at least nine years, as the credit-market freeze prompted banks to reduce lending.

Sterling fell 0.9 percent to $1.9735 per dollar, from $1.9914, dropping 0.5 percent this month. The British currency decreased 0.4 percent to 78.92 pence per euro, from 78.62 pence. The dollar rose 0.8 percent to 5.1297 versus Norway's krone.

Bond Spread

The European currency's decline against the dollar accelerated as Deutsche Bank AG, the world's largest currency trader, reported its first quarterly loss in five years after writing down the value of loans for leveraged buyouts and asset- backed securities by 2.7 billion euros.

European retail sales dropped the most in more than four years in April as rising fuel and food prices squeezed shoppers' budgets, the Bloomberg purchasing managers index showed today. French consumer confidence dropped this month to a record low as accelerating inflation squeezed incomes.

``You have a re-emergence of the recoupling theme that the slowdown in the U.S. is spreading to other countries,'' said Michael Malpede, a senior currency analyst in Chicago at Man Global Research. ``The dollar, which has been on its knees, is in a short-term bottoming process.''

Investors should sell the euro against the dollar over the next several weeks because two-year German bunds have lost some of their yield advantage over comparable-maturity Treasuries, said Citigroup Inc., one of the 10 biggest currency traders. The yield difference, or spread, between the two securities has decreased to 1.46 percentage points, from 1.85 on March 31, the most since the euro was launched in 1999.

ECB Rate

European Central Bank policy makers have held the main refinancing rate at a six-year high of 4 percent since June to contain inflation. The U.S. central bank has cut its fed funds target 3 percentage points to 2.25 percent since September.

Gains in the dollar may stall at 106.60 yen, said Masashi Kurabe of Bank of Tokyo-Mitsubishi UFJ Ltd., citing charts that traders use to predict price movements.

The resistance level for the dollar is a 38.2 percent reversal of its decline to a low of 95.76 yen on March 17 from a high of 124.13 yen on June 22, based on the Fibonacci series of numbers. Resistance is a level where sellers may outnumber buyers.

``The dollar may reach that level in one month, but will face strong resistance around there,'' said Kurabe, head of the foreign-exchange sales and trading group in Hong Kong at Japan's second-largest bank by assets.

The U.S. currency remained higher against the euro as the Conference Board reported that confidence among U.S. consumers fell less than forecast this month. The New York-based research group's index of sentiment dropped to 62.3, the lowest level since March 2003, from a revised 65.9 in March. The median forecast of 67 economists surveyed by Bloomberg News was for the gauge to fall to 61 from a previously reported 64.5.

No comments: