Sun, Dec 25, 2011 - Page 10 News List

US dollar falls amid reduced haven demand

DECOUPLING:An analyst said problems related to the euro are becoming centered around the shared currency, rather than a domino effect on other global currencies

Bloomberg

The US dollar fell for the third week in the past four on reduced demand for haven assets as US economic data added to signs that the economy’s expansion may withstand slowing growth in Europe where leaders seek to address the region’s debt crisis.

The euro was little changed against the greenback as three-year bank loans from the European Central Bank (ECB) helped ensure funding for the region’s financial system next year. IntercontinentalExchange Inc’s Dollar Index, a gauge of the US currency against the currencies of six major US trading partners, fell 0.2 percent to 79.997 this week as US durable goods orders rose more than forecast before a private report projected to show consumer confidence increased this month.

“We’re seeing a divergence where euro problems are becoming eurocentric as opposed to market-wide,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. “It’s no longer the domino theory, where what’s transpiring in Europe is automatically flowing into the Canadian dollar, the Australian dollar.”

The US dollar was little changed at US$1.3044 euro in New York from US$1.3046 on Dec. 16. The US currency rose 0.4 percent to ¥78.09. The euro dropped 0.4 percent to ¥101.86.

South Africa’s rand has declined 18.7 percent against the dollar this year, the most of the US currency’s major peers, followed by Mexico’s peso with a 10.8 percent loss. The yen has advanced 3.9 percent for the largest gain against the greenback.

The euro depreciated 1.4 percent this year against nine developed-nation counterparts as Europe’s crisis intensified. The greenback has advanced 1.1 percent and the yen has gained 3.8 percent.

The ECB said on Wednesday it had awarded 489 billion euros (US$637 billion) in 1,134-day loans to banks, more than the 293 billion euros forecast by economists.

John Taylor, founder of currency-hedge fund FX Concepts LLC, said the ECB loans to eurozone banks are a form of quantitative easing (QE) and the euro is destined to slide next year.

“This is QE in another form,” Taylor said in an interview on Thursday, referring to the monetary policy the US Federal Reserve used in purchasing debt to keep long-term rates low. “Three-year money at a low price — you can give it back after a year — it’s a giveaway. What scares me is what the hell are they going to do with it? They’ll buy Spanish and Italian debt.”

While investors speculated that banks may use the loans to buy higher-yielding sovereign debt, which could help reduce borrowing costs for European countries, including Spain and Italy, signs emerged that financial institutions may be hoarding the cash for refinancing needs next year.

“There is a banking problem in Europe and the ECB is trying to find creative ways to ease those funding problems,” Sutton said. “At least the funding crunch of 2012 is pushed out a bit further.”

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