Dollar Weakens as Global Stock Gains Reduce Demand for Safety

By Molly Seltzer and Oliver Biggadike


March 10 (Bloomberg) -- The dollar weakened against all of the major currencies as global stocks advanced after a Citigroup Inc. memo said the bank is having the best quarter since 2007, reducing demand for the greenback as a haven.

Sterling fell against the euro on a report showing U.K. housing sales dropped to the lowest level since at least 1978. The euro approached a two-month high against the yen as European Central Bank council member Axel Weber said the main interest rate shouldn’t be cut below 1 percent.

“People might be willing to take on a bit more risk if equities bounce,” said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut. “That would help the euro, hurt the dollar.”

The U.S. currency weakened 1.3 percent to $1.2773 per euro at 10:40 a.m. in New York, from $1.2611 yesterday. The euro appreciated 0.8 percent to 125.62 yen from 124.65. It reached 126.08 on Feb. 26, the highest level since Jan. 8. The dollar lost 0.6 percent to 98.23 yen from 98.84.

The Dollar Index, which the ICE uses to track the greenback’s performance against the currencies of six U.S. trading partners, fell 0.5 percent to 88.547 after stock gains eroded safety demand for the greenback. The index touched 89.624 on March 4, the highest since April 2006.

Sweden’s krona and South Africa’s rand were the biggest gainers versus the dollar among the major currencies. The krona appreciated 3.5 percent to 8.8916 versus the dollar after sliding to a 6 1/2-year low on March 5. The rand gained 2.7 percent to 10.3580 on higher copper prices.

Stock Gains 

The Standard & Poor’s 500 Index rallied 4 percent as Citigroup Chief Executive Officer Vikram Pandit said in the memo obtained by Bloomberg News that the bank’s current share price doesn’t reflect its earnings potential or capital position. The MSCI World Index rose 0.7 percent.

The yen declined 2.7 percent to 11.03 against the Swedish krona and 2 percent to 14.11 versus the Norwegian krone as evidence Japan’s economy is sinking deeper into recession undermined demand for the currency.

Japan’s Cabinet Office reported that a leading index of business conditions fell to 77.1 in January from a revised 79.4 in the previous month, below the consensus forecast of 77.4 in a Bloomberg News survey of 14 economists. The coincident index, which shows current economic activity, dropped to 89.6 from a revised 92.2.

Machinery orders slumped 4.8 percent in January, according to a separate Bloomberg survey of economists before a Cabinet Office report tomorrow.

Japan’s ‘Vulnerability’ 

“The incoming data is likely to illustrate the vulnerability of the Japanese economy,” said Takashi Matsumura, a Tokyo-based economist at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group. “The weak data will be yen-negative.”

The South Korean won advanced 2.5 percent to 1,510.77 against the dollar on speculation the plunge last week to the lowest level in more than a decade would be hard to sustain. The currency slid 26 percent in 2008 and touched 1,597.45 on March 6, the weakest level since 1998.

“There are offshore players who are selling dollars for the won after an excessive overshoot in the exchange rate in recent weeks,” said Roh Sang Chil, a currency dealer at Kookmin Bank in Seoul. “Rising stocks are lending support to the currency market. From April, we’ll see the overall situation improving.”

Pound Versus Euro 

The pound declined as much as 1 percent to 92.48 pence per euro, the weakest level since Jan. 29, after the Royal Institution of Chartered Surveyors said the average number of transactions in a survey of real-estate agents and surveyors fell to 9.5 per respondent in the quarter through February, the lowest level since the data began three decades ago.

“The housing data was bad, and we’re nervous about the economy,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International.

The euro gained against the dollar as the ECB’s Weber said at a press conference in Frankfurt today that “the bottom line” for the main rate should be 1 percent. The central bank cut the target to 1.5 percent on March 5, a record low.

The 16-nation currency also advanced on speculation European investors bought the euro to repatriate income from abroad as they closed their books before March 31.

“Investors in central and eastern Europe appear to be repatriating funds,” said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co., a unit of Japan’s largest brokerage.

 

Darling’s Stance 

U.K. Chancellor of the Exchequer Alistair Darling called on the European Union to bolster a facility used to support nations facing financial difficulties, saying the EU must do more to help former Communist states.
“Our priority must be to support those countries most at risk from the aftershock of the global financial crisis, starting with those on our own doorstep in Europe,” Darling wrote in a letter published in the Guardian newspaper today.

To contact the reporters on this story: Molly Seltzer in New York at mseltzer4@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net
Last Updated: March 10, 2009 10:42 EDT