US$ gains as stock declines spur safety bid

Bloomberg and AFP

LONDON/TOKYO — The dollar rose against the euro, trimming its biggest weekly decline since March, as stocks fell, prompting investors to take refuge in U.S. Treasuries. The dollar also advanced versus the Swiss franc, South African rand and Swedish krona as Europe’s Dow Jones Stoxx 600 Index dropped for the first time in five days. The euro weakened against the yen and the pound as investors added to bets the European Central Bank will cut interest rates next week after inflation slowed by the most since at least 1991. “The momentum in equities has faded and so people are turning to the safety of the dollar,” said Lee Hardman, a currency strategist in London at Bank of Tokyo-Mitsubishi Ltd. “The recent return of risk appetite is likely to prove short lived because the economic problems aren’t over.” The dollar strengthened to US$1.2828 per euro as of 6:39 a.m. in New York, from US$1.2904 Thursday, down 1.8 percent from Nov. 21, when it capped its biggest weekly drop since March 28. The dollar bought 95.28 yen, from 95.19 Thursday and 95.96 a week ago. The euro weakened to 122.18 yen, from 122.89 Thursday, trimming a weekly gain to 1.2 percent this week. In Asia Friday, the dollar was on the back foot as expectations mounted that the Federal Reserve will cut interest rates at its meeting next month, traders said. The dollar slipped to 95.32 yen in Tokyo afternoon trade from 95.58 in London late Thursday, when U.S. markets were closed for the Thanksgiving Holiday. The euro firmed to 1.2923 dollars from 1.2879 but slipped to 123.14 yen from 123.18. The dollar was mixed in regional Asian trade, rising to 12,300 Indonesian rupiah from 12,275 on Thursday, to 33.30 Taiwan dollars from 33.22 and to 35.49 Thai baht from 35.33. The greenback slipped to 48.87 Philippine pesos from 48.90, to 1,469 South Korean won from 1,483 and to 1.5074 Singapore dollars from 1.5139.

The greenback was pressured as markets bet that U.S. lending rates would be reduced again at the Fed’s December 15-16 meeting from the current level of one percent, Sumitomo Trust Bank chief forex strategist Saburo Matsumoto said. Lower interest rates usually make a currency less attractive to investors, although recently markets have been favoring currencies that are seen as safe havens in the financial storm, such as the yen. “How aggressively central banks cut interest rates next week will play a key role in whether fears of a global recession continue to recede,” said NAB Capital analyst John Kyriakopoulos.