By Bo Nielsen and Ye Xie
March 16 (Bloomberg) -- The euro climbed against the dollar for a fifth day, the longest stretch of gains in three months, as stock markets rose and Group of 20 policy makers said they would double the International Monetary Fund’s resources.
The pound gained versus the greenback and euro after Barclays Plc, the U.K.’s third-biggest lender, said it had a “strong start” to 2009. The dollar dropped to a one-month low versus the South Korean won and Swedish krona as investors’ aversion to less-liquid, higher-yielding assets abated.
“Risky assets continue to outperform,” said Sebastien Galy, a currency strategist in New York at BNP Paribas Securities SA, who forecasts that the euro will rise another 2 percent in the next few days. “We see a continuation of improvement in stocks.”
The euro rose 0.8 percent to $1.3026 at 9:58 a.m. in New York, from $1.2928 on March 13. It gained 2.2 percent last week, the first weekly advance since early February. The yen slid 0.5 percent to 98.42 versus the dollar from 97.95 and 1.2 percent to 128.20 per euro from 126.65. The pound climbed 0.9 percent to $1.4126 from $1.4002.
The 16-nation currency surged past $1.30 for the first time since Feb. 10 after G-20 finance ministers at a meeting in the U.K. over the weekend pledged a “sustained” effort to end the global recession. They also told the IMF it will have its resources at least doubled to $500 billion after being inundated with loan requests from Pakistan to Hungary.
“We may be seeing a turnaround in the euro,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “The bounce in stock markets and the G-20 providing the IMF with more money to help eastern Europe are giving the euro a real boost.”
‘Biggest Beneficiaries’
The biggest major beneficiaries this week from the G-20 statement will include the euro and Swedish krona, said John Normand, global head of foreign-exchange strategy in London at JPMorgan Chase & Co. in a March 14 interview.
“The euro and krona are the currencies most often used to hedge a sovereign funding crisis in Europe,” Normand said. “Since the G-20 has committed to recapitalizing the IMF, the risk of funding crisis is substantially lower.”
The krona surged as much as 2.5 percent to 8.4096 per dollar, the strongest level since Feb. 16, and gained 1.4 percent to 10.9913 per euro. Sweden’s currency slid to 9.3309 on March 5, the weakest level since October 2002, on concern writedowns of about $100 billion of Swedish banks’ holdings in eastern Europe states will curb lending.
Weaker Yen
The yen fell today against all of the 16 major currencies tracked by Bloomberg as the Standard & Poor’s 500 Index rose 1.2 percent, encouraging Japanese investors to buy higher-yielding assets overseas. Barclays rose as much as 23 percent in London as it joined Citigroup Inc., Deutsche Bank AG and Bank of America Corp. in announcing a positive start to the year.
The dollar fell against higher-yielding currencies such as the South Korean won and Swedish krona on reduced demand for the safety of U.S. government debt.
The Dollar Index, which the ICE futures exchange uses to track the greenback versus the euro, yen, pound, Swiss franc, Canadian dollar and krona, fell to 86.46, the lowest since Feb. 23. The gauge has lost 3.3 percent since March 4, when it touched 89.62, the highest level since April 2006.
The U.S. currency dropped as much as 3.3 percent to 1,434.30 South Korean won, the lowest level since Feb. 17.
Federal Reserve Chairman Ben S. Bernanke and other Federal Open Market Committee members will keep the target lending rate in a range of zero to 0.25 percent at a two-day meeting starting tomorrow, according to the median forecast of 71 economists surveyed by Bloomberg News.
Buying Treasuries
After their last meeting on Jan. 28, policy makers said they were “prepared to purchase longer-term Treasury securities” if it became clear the policy would be “particularly effective” in getting credit flowing again. The recession will end this year should the government succeed in stabilizing financial markets, Bernanke said yesterday in an interview on CBS’s “60 Minutes.”
“The dollar is likely to remain under pressure ahead of the FOMC,” Lee Hardman, a currency economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London, wrote in a note today. “However, it has also been notable that dollar weakness in the run-up to the meetings has quickly reversed post meeting, reflecting investor disappointment that the Fed’s actions have not been as aggressive as expected.”
Foreign governments and private investors are both pouring money into dollars for the first time since 2001, signaling that the U.S. currency is peaking, according to Barclays Capital.
Dollar Demand
Steven Englander, chief U.S. currency strategist at Barclays, estimates foreign purchases of American assets have reached record levels, after they bought $133 billion a month on average since November, based on government statistics.
“People are sitting there holding massive amounts of zero- yielding dollar assets,” said Englander, who started his career at the New York Fed. “If there is any sort of good news, demand for dollars can drop off very, very quickly.”
Foreign investors purchased a net $10.7 billion in U.S. government notes and bonds in January, compared with $15 billion in the previous month, the Treasury Department reported today.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
Last Updated: March 16, 2009 09:59 EDT
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