Dollar May Gain Against Euro as Bernanke Endorses More Stimulus
By Ye Xie and Daniel Kruger
Oct. 21 (Bloomberg) -- The dollar may rise against the euro for a fifth day after Federal Reserve Chairman Ben S. Bernanke endorsed additional U.S. fiscal stimulus.
The greenback advanced against the South African rand and the Swiss franc yesterday on speculation U.S. government and central-bank efforts will help the largest economy recover from a recession before the rest of the world.
``Over the longer term, we will see the demand for U.S. dollars remain in place as part of the global slowdown,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, France's biggest bank.
The dollar traded at $1.3342 per euro at 6 a.m. in Tokyo, after rising 0.5 percent yesterday. It touched $1.3259 on Oct. 10, the strongest since March 2007. The U.S. currency was little changed at 101.88 yen. The dollar was at 10.1875 versus the rand following a 1.8 percent gain and traded at 1.1498 francs after appreciating 1.1 percent. The yen traded at 135.92 per euro, following a 0.2 percent advance.
Lawmakers ``should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers,'' Bernanke said in testimony to the House Budget Committee yesterday. ``Such actions might be particularly effective at promoting economic growth and job creation,'' he told lawmakers.
Within an hour of the conclusion of Bernanke's testimony, White House Press Secretary Dana Perino said officials are ``open'' to the idea of a new plan and would ``look carefully'' at suggestions.
Dollar's Rally
The dollar has gained 17 percent since touching the record low of $1.6038 per euro on July 15 on speculation the greenback will benefit as the European economy slows.
Traders expect the European Central Bank to lower borrowing costs further after cutting the main refinancing rate by a half- percentage point to 3.75 percent on Oct. 8 as part of coordinated reductions by major central banks. The implied yield on the three-month Euribor contract expiring in March fell to 3.41 percent yesterday, the lowest in seven months. The yield has been 0.23 percentage point higher than the benchmark rate on average over the past year.
The Fed will lower its 1.5 percent target lending rate by at least a quarter-percentage point when the central bank announces its next policy decision on Oct. 29, interest-rate futures indicated.
``The ECB has much more room to lower rates,'' said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. ``The Fed is ahead and proactive in easing rates. The rate expectations will kick into play, and the dollar should get supported.''
Currency Volatility
Investors see smaller price swings in major currencies on speculation the credit market may be thawing after governments bailed out financial institutions and injected cash into the banking system.
Volatility on major currencies declined to 15.58 percent yesterday, from 16.97 percent on Oct. 17, according to a JPMorgan Chase & Co. index. The gauge touched 20.9 percent on Oct. 10, the highest since its inception in 1992.
``There's more hope that volatility will drift lower,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``People are still gun-shy.''
The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars slid 36 basis points, or 0.36 percentage point, to 4.06 percent yesterday, the biggest drop in nine months, according to the British Bankers' Association.
Carry Trades
The dollar swung between a gain and a loss versus the yen yesterday, indicating investors aren't committed to resuming carry trades, in which they buy higher-yielding assets funded by currencies of countries with low interest rates. The yen has advanced 4 percent versus the dollar this month on speculation carry trades unwound.
``There's going to be two very distinct camps, between people who have risk appetite and people who are risk-averse,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``Those two camps will continue to play off against each other, creating relatively choppy markets.''
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