Home > Business/Markets > Dollar Approaches Eight-Month Low Versus Yen as Stocks Fall After Report

Dollar Approaches Eight-Month Low Versus Yen as Stocks Fall After Report

By Catarina Saraiva
Aug 5, 2010 9:23 AM PT Thu Aug 05 16:23:29 GMT 2010

The dollar approached an eight-month low against the yen after the number of Americans filing for unemployment benefits last week unexpectedly increased, adding to speculation the U.S. economic recovery is stalling.

The euro erased gains versus the greenback as U.S. stocks fell, eroding the appeal of currencies related to economic growth. It earlier rose almost to a three-month high after the European Central Bank held its main interest rate steady and ECB President Jean-Claude Trichet said available third-quarter economic data are better than expected. The shared currency fell against the yen.

“It’s the soft data and the fact that the yen typically gets some safe-haven support when the equity markets are on the downside,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “They’re both pushing in the same direction, in the direction of a stronger yen.”

Japan’s currency gained 0.4 percent to 85.91 per dollar at 12:19 p.m. in New York. It reached 85.33 yen yesterday, the strongest since Nov. 27, when it touched levels last seen in 1995. The euro slipped 0.1 percent to $1.3150 after rallying 0.6 percent earlier. It touched $1.3262 two days ago, the highest level since May 3. The euro fell 0.5 percent to 112.97 yen.

The Standard & Poor’s 500 Index sank 0.4 percent while the Stoxx Europe 600 Index fell 0.3 percent.

U.S. initial jobless claims climbed by 19,000 to 479,000 in the week ended July 31, the most since April, Labor Department data showed today in Washington. Economists surveyed by Bloomberg News forecast a decrease.

Stimulus Measures

The report intensified speculation the Federal Reserve will introduce stimulus measures next week at its next policy meeting. A Labor Department report tomorrow will show employers cut 65,000 jobs in July, the second straight drop in non-farm payrolls, according to the median estimate in a Bloomberg survey of 83 economists.

“The market has absorbed and priced in a much more pessimistic outlook for the U.S. economy and a Fed potentially reinvigorating its monetary easing,” Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney, wrote in an e-mailed report today. “The market continues to presume the Fed will act quickly if its recent economic slowdown becomes too severe.”

The euro strengthened versus the pound after Trichet said money markets are improving as the region’s sovereign-debt crisis eases. The euro gained 0.1 percent to 82.92 pence.

Europe Versus U.S.

Europe’s single currency has rallied 10 percent since reaching a four-year low versus the dollar on June 7 as investors gained confidence that government austerity measures will help the region weather the debt crisis. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six trading partners, fell to the lowest level since April this week as reports signaled U.S. growth may be fading.

“The available data for the third quarter are better than expected,” Trichet said today at a press conference in Frankfurt. “The market is functioning a little bit better.”

Growth in Europe’s services and manufacturing industries accelerated in July, suggesting the recovery will maintain its momentum. A composite index based on a survey of euro-area purchasing managers in both industries rose to 56.7 from 56 in June, London-based Markit Economics said Aug. 4. The July reading matched Markit’s earlier estimate. A reading above 50 indicates expansion.

The euro has appreciated 2.1 percent since July 23, when results of stress-test for European banks showed most lenders have sufficient capital to withstand a recession and sovereign- debt crisis.

‘Great Progress’

Greece has shown “great progress” in implementing austerity measures and should qualify for a 9 billion-euro ($7.6 billion) installment of emergency loans, Poul Thomsen, head of the International Monetary Fund’s Greece mission, said at a press conference in Athens today. Spain sold the maximum amount of three-year notes at an auction and its borrowing costs fell, easing concern the nation may struggle to fund its deficit.

The ECB left its benchmark interest rate at a record low of 1 percent, as predicted by analysts in a Bloomberg survey. Bank of England policy makers kept their main rate at 0.5 percent and maintained a bond-buying plan, with both decisions matching forecasts in separate Bloomberg surveys.

The Dollar Index was little changed after a 0.4 percent advance yesterday, when the Institute for Supply Management’s index of non-manufacturing businesses unexpectedly rose and data from ADP Employer Services showed companies in the U.S. added more jobs in July than analysts estimated.

Swiss Franc

The Swiss franc appreciated 0.6 percent to 1.3784 per euro and strengthened 0.5 percent against the dollar to 1.04678. The Swiss National Bank’s currency reserves fell for a second month in July, raising speculation it’s taking advantage of a stronger euro to sell the shared European currency.

Currency holdings dropped to 219.3 billion francs ($209.3) from 224.9 billion in June, the bank said in a statement on its website today. That’s the second monthly decline after holdings peaked at 238.8 billion francs in May.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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