Dollar Gains on Optimism Worst of U.S. Economic Crisis Is Over

By Ron Harui

April 10 (Bloomberg) -- The dollar rose against the euro, heading for the biggest weekly gain in three months, on speculation the worst of the financial crisis is over in the world’s largest economy.

The greenback advanced versus 14 of the 16 most-traded currencies on optimism U.S. financial companies reporting next week will post better-than-expected earnings. Wells Fargo & Co. yesterday announced a record profit that surpassed the most optimistic estimates. The euro was poised for its largest weekly loss in three months versus the yen on concern the European Central Bank will keep cutting interest rates.

“Wells Fargo’s results augur well for U.S. banks’ earnings and point to an easing in the financial crisis,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The dollar is likely to be bought.”

The dollar climbed to $1.3135 per euro as of 11:48 a.m. in Tokyo from $1.3169 in New York yesterday. It touched $1.3090, the strongest level since March 18. The greenback has risen 2.7 percent this week, the most since the first week of the year. The U.S. currency advanced to $1.4654 versus the pound from $1.4680, and strengthened to 1.1588 Swiss francs from 1.1560.

The yen rose to 131.76 per euro from 132.24 yesterday. Japan’s currency traded at 100.32 per dollar from 100.42, and was at 72.08 to the Australia dollar from 72.22.

Exchange-rate movements may be more volatile than normal as the Easter holiday reduces the volume of trading, Ishikawa said.

Weekly Gain 

The greenback was set for its largest weekly gain versus the franc since January after Wells Fargo, the second-largest U.S. home lender, said yesterday first-quarter net income surged because of “strong” revenue from Wachovia Corp., which it acquired last year. Goldman Sachs Group Inc. will release its first-quarter results on April 14.

The euro fell for a second day against the dollar on speculation the European Central Bank will lower its benchmark borrowing rate from the current 1.25 percent.

ECB council member Ewald Nowotny said cutting the rate below 1 percent was still open for debate and it would be “sensible” for the bank to buy corporate debt as it fights for an economic recovery.
“There seems to be a growing consensus for more rate reductions” from the ECB, said Akifumi Uchida, deputy general manager of the marketing unit in Tokyo at Sumitomo Trust & Banking Co., Japan’s fifth-largest bank. “The euro will probably weaken.”

Rate Bets 

Investors raised bets the ECB will lower borrowing costs at it meeting next month. The yield on the three-month Euribor interest-rate futures contract for May delivery fell to 1.31 percent yesterday from 1.36 percent a week earlier, according to data compiled by Bloomberg.

“It’s my personal opinion that the benchmark rate should not go below 1 percent, but this is a point that’s open for discussion,” Nowotny, who heads Austria’s central bank, said in a telephone interview on April 8. The purchase of commercial paper and corporate bonds is “a sensible and efficient measure” that would take time to prepare, he said.

The yen extended this week’s gains versus the 16-nation currency as Asian stocks trimmed an earlier advance, prompting in investors to reduce holdings of higher-yielding assets.
The Nikkei 225 Stock Average pared its advance to 0.5 percent after rising as much as 1.7 percent. The Standard & Poor’s 500 Index climbed 3.8 percent yesterday.

“The Japanese stock market isn’t reacting as positively as the U.S.’s,” said Ryohei Muramatsu, Tokyo-based manager of Group Treasury Asia at Commerzbank AG, Germany’s second-biggest lender. “The pullback in equities here is leading to some buying of the yen.” 

Japan’s currency may strengthen to 131.30 per euro and 100 against the dollar today, he said.
To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net.
Last Updated: April 9, 2009 22:54 EDT