By - Jan 19, 2011 2:56 PM GMT+0800
The dollar fell to a five-week low against the euro on speculation a sluggish recovery in U.S. housing and labor markets will deter the Federal Reserve from raising interest rates.
The U.S. currency dropped to the lowest in two weeks versus the yen before reports today and tomorrow forecast to show housing starts fell and continuing jobless claims increased. South Korea’s won rose the most in two weeks as the central bank said it may boost its forecast for economic growth. The yuan climbed to a 17-year high against the dollar before Chinese President Hu Jintao meets with President Barack Obama today.
“Housing and employment have been lagging the pace of U.S. recovery,” said Morio Okayasu, chief analyst in Tokyo at FOREX.com Japan Co., a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey. “Weaker-than-estimated housing data may put the dollar under selling pressure.”
The dollar fell to $1.3465 per euro as of 6:51 a.m. in London from $1.3387 in New Yorkyesterday, after dropping to $1.3484, the weakest since Dec. 14. The U.S. currency declined to 82.27 yen from 82.56 yen, after sliding to 82.13, the lowest since Jan. 5. The yen traded at 110.80 per euro from 110.52.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, dropped 0.5 percent to 78.579.
Housing Starts
U.S. housing starts declined 0.9 percent to a 550,000 annual rate last month, according to a Bloomberg survey before today’s Commerce Department report. The number of people continuing to receive jobless benefits rose to 3.99 million in the week ended Jan. 8 from 3.88 million the previous week, another survey showed before the data tomorrow.
The Federal Open Market Committee will keep interest rates unchanged at its next meeting on Jan. 25-26, according to all 87 economists surveyed by Bloomberg.
There’s a 60 percent chance U.S. policy makers will hold the benchmark where it is or lower it by December, according to futures on the Chicago Board of Trade. The probability was 40 percent a month ago. The rate has been at a range of zero to 0.25 percent since December 2008.
The yuan advanced to 6.5819 per dollar the strongest level since China unified official and market exchange rates at the end of 1993, before trading at 6.5825 from 6.5829 yesterday.
U.S. Treasury Secretary Timothy F. Geithner said China should understand that the currency’s level is a “big issue.” Speaking in a radio interview broadcast yesterday, Geithner said a stronger yuan is in China’s interest and a rising currency would help the nation manage inflation.
‘Weaken the Dollar’
“The U.S. is expected to keep pushing China to strengthen its currency,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “It will likely weaken the dollar.”
The won gained for a second day after central bank Governor Kim Choong Soo said the Bank of Korea may upgrade its gross domestic product expansion estimate of 4.5 percent for this year.
The currency was also boosted as the Kospi stock index rose 0.9 percent after International Business Machines Corp. and Apple Inc. reported results that beat estimates.
“The Korean won was strong in the offshore market so that continued into the spot this morning,” said Kim Sung Soon, a currency dealer at Industrial Bank of Korea in Seoul.
The won rose 0.6 percent to close at 1,110.43 per dollar, the biggest one-day gain since Dec. 31.
‘Negative Factors’
Gains in the euro were tempered on speculation European policy makers will delay efforts to provide more funds for debt- strapped countries.
German Finance Minister Wolfgang Schaeuble said there is no urgent need to act, eyeing a late-March deadline to strengthen the 750 billion-euro ($1.01 trillion) rescue fund, hammer out a permanent anti-crisis tool and tighten fiscal rules for the euro area. European Union financial chiefs ended a two-day meeting in Brussels yesterday.
“The euro has been bought on expectations for rescue efforts, and it gets sold when officials can’t get their act together,” said Kazuya Yashiro, a currency analyst at Himawari Securities, Inc. in Tokyo. “Sentiment remains heavy on the euro due to the debt crisis, which produces only negative factors.”
The euro has dropped 0.3 percent over the past month in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has lost 0.3 percent, while the dollar is down 2.6 percent.
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
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