By - Jan 8, 2011 1:00 PM GMT+0800
The dollar rose the most since August against the currencies of major trading partners as reports showed services industries expanded in December at the fastest pace in four years and employers added jobs for a third month.
Mexico’s peso and Canada’s dollar were the top performers this week against the yen as investors became more confident in the North American recovery before a report next week on U.S. retail sales. The euro fell to a three-month low against the dollar as the Swiss National Bank said it won’t accept bonds from Ireland’s government and some Irish banks as collateral.
“The U.S. economy is on much sounder footing going forward, which means the dollar is a more attractive currency, especially versus Europe,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “For a lot of people, you’ve reached an important milestone where finally the dollar can benefit from good data.”
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro and yen, increased 2.7 percent to 81.129 yesterday, from 79.028 on Dec. 31.
The index’s weekly rally is the biggest since an advance of 3.2 percent during the five days ended Aug. 13. That week the Federal Reserve said the economic recovery will be “more modest,” spurring demand for the dollar’s safety.
The euro fell 3.6 percent to $1.2907, from $1.3384 last week, in its biggest weekly drop since August. It touched $1.2905, the lowest level since Sept. 14. The dollar gained 2.5 percent to 83.15 yen in the biggest increase since it rose 4.7 percent during the week ended Dec. 4, 2009.
U.S. Services
The Institute for Supply Management’s non-manufacturing index, which covers about 90 percent of the U.S. economy, rose in December to 57.1, the highest level since May 2006, the Tempe, Arizona-based group said Jan. 5.
Nonfarm payrolls rose by 103,000 in December after a revised increase of 71,000 in the previous month, the Labor Department reported yesterday. The median forecast of 78 economists in a Bloomberg News survey was for a gain of 150,000. The unemployment rate slid to 9.4 percent from 9.8 percent.
“The tone for the dollar should be stronger as most of the data has been coming in on the stronger side and funding problems still weigh on the euro,” said Paresh Upadhyaya, head of Americas Group-of-10 currency strategy at Bank of America Corp. in New York.
Retail sales increased 0.8 percent in December, matching the gain in the previous month, according to the median forecast of 58 economists in a Bloomberg News survey. The report from the Commerce Department is due Jan. 14.
Stronger Peso
Mexico’s peso rallied 3.4 percent to 6.80 yen, and the loonie, as the Canadian currency is known, appreciated 3 percent to 83.71 yen. The U.S. is the biggest trading partner of Mexico and Canada.
Australia’s dollar fell the most versus the greenback since November on concern floods in the state of Queensland will impair exports of natural resources, which have helped drive economic growth in the nation.
The Aussie dropped 2.7 percent to 99.59 U.S. cents after trading at parity with the dollar for two weeks. The Australian currency touched $1.0256 on Dec. 31, the highest level since it began trading freely in 1983.
Chile’s peso declined 6 percent to 497.63 versus the dollar, the most versus the greenback since February 2009, after central bank President Jose De Gregorio announced a plan to buy $50 million a day in the foreign-exchange market from Jan. 5 until Feb. 9 to offset the biggest trade surplus in two years.
Weaker Real
Brazil’s real fell as the central bank set reserve requirements on positions against the dollar held by local banks in a third attempt since October to stem the currency’s rally.
The real lost 1.4 percent to 1.6840 versus the dollar, touching 1.6937 on Jan. 6, the weakest level since Dec. 27. The currency has appreciated 37 percent since the end of 2008.
The euro fell against the dollar this week as Switzerland’s central bank excluded securities issued by the Irish government as well as Allied Irish Banks Plc, Anglo Irish Bank Corp., Irish Life & Permanent Plc and Bank of Ireland Plc from the list of assets it accepts as collateral for its repurchase operations.
The Markit iTraxx SovX Western Europe Index rose 1 basis point to a record 214 basis points yesterday after credit- default swaps on Belgium jumped 14 basis points and Ireland’s increased by 6 basis points to an all-time high. Contracts on Portugal rose 9 basis points to 534, the highest since Nov. 30.
European Union
The European Union may give regulators power to block new products and limit trading risks at banks deemed too big to fail, as part of plans to protect public finances from future financial crises, according to draft proposals obtained by Bloomberg News.
“You’ve got this resurrection of fear surrounding the peripheral European debt crisis and the fact that it’s likely to rear its head again,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut.
To contact the reporters on this story: Catarina Saraiva in New York atasaraiva5@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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