Wednesday, April 15, 2009

Dollar Trades Near 4-Week High on Prospect U.S. Slump Deepening

By Ron Harui and Oliver Biggadike

April 16 (Bloomberg) -- The dollar traded near a four-week high against the euro before U.S. reports that may show the recession is worsening in the world’s largest economy, boosting demand for the relative safety of the currency.

The euro traded near a two-week low versus the yen on concern a European Union report today will show the region’s industrial production dropped by the most on record in February, supporting the case for policy makers to lower borrowing costs. The yen rose against 15 of the 16 most-active currencies on speculation the global slump will deepen, spurring investors to reduce holdings of higher-yielding assets.

“Worries about the global economy are escalating, hurting investor confidence,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. “We’d expect ‘safe- haven’ demand to underpin the dollar and weigh on yen crosses like the euro-yen.”

The dollar traded at $1.3206 per euro at 8:15 a.m. in Tokyo from $1.3227 in New York yesterday. It reached $1.3090 on April 10, the highest level since March 18. The greenback was at 99.32 yen from 99.37 yen. The euro bought 131.13 yen from 131.44 yen.

U.S. builders started construction last month on an annualized 540,000 homes, fewer than the 583,000 reported in February, economists in a Bloomberg survey said before the Commerce Department’s report today. Initial jobless claims probably rose to 660,000 in the week ended April 11, a Labor Department report is forecast to show.

Industrial output in the U.S. fell 1.5 percent in March, matching February’s decrease, the Federal Reserve said yesterday. The median forecast of 76 economists surveyed by Bloomberg was for a 0.9 percent decline.

‘Phase of Normalization’

“The dollar is in a phase of normalization right now as the safe-haven flows start to recede very slowly,” said Sebastien Galy, senior currency strategist at BNP Paribas Securities SA in New York, in a Bloomberg Television interview yesterday. “It’s not a very pessimistic outlook for the dollar.”

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, advanced 0.5 percent to 85.08 after dropping 2.9 percent in March.

The euro may weaken for a third day against the dollar as the European Union’s statistics office in Luxembourg may say today that industrial production fell 18 percent in February from a year earlier, the biggest decline since the data series began in 1986.

Investors raised bets that the ECB will reduce rates at its May 7 meeting. The yield on the three-month Euribor interest- rate futures contract for May delivery fell to 1.285 percent yesterday from 1.305 percent on April 14.

Benchmark interest rates are 1.25 percent in the euro area and 3 percent in Australia and in New Zealand, making assets in the 16-nation region and the South Pacific nations attractive to international investors seeking higher returns. Japan’s benchmark borrowing cost is 0.1 percent and the U.S. rate is between zero and 0.25 percent.

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