The dollar traded near an eight-week low against the yen amid speculation the U.S. Federal Reserve will print more cash to boost purchases of assets as it seeks to counter the global slump.
The U.S. currency weakened most against the Taiwan and Canadian dollars after the Fed projected a deeper recession in 2009. New Zealand’s dollar rose for a fourth day after a government report showed immigration growth accelerated. The euro traded near a four-month high against the dollar after a German manufacturing and services survey beat economists’ forecasts.
“The Fed may expand its asset-purchase program, which would increase the supply of greenbacks,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “This could undermine the value of the dollar and spur investors in the U.S. to put their funds overseas.”
The U.S. currency traded at 94.81 yen as of 8:38 a.m. in London from 94.88 yesterday in New York. It fell to 94.29 earlier, the lowest level since March 20. Japan’s currency strengthened to 130.62 per euro from 130.77. The euro was little changed at $1.3777 from $1.3780 yesterday, when it reached $1.3830, the strongest level since Jan. 5.
Fed policy makers, meeting April 28-29 in Washington, saw “significant downside risks” to the outlook for the economy, with the global financial system still “vulnerable to further shocks,” minutes of the session released yesterday said. The report indicates the Fed may be ready to build on its plan in March to buy $300 billion of Treasuries should the economy or financial markets deteriorate further.
Fourth-Quarter Contraction
The dollar depreciated to as low as $1.5817 per pound, the weakest since Nov. 10, before trading at $1.5773, from $1.5755 yesterday. The New Zealand dollar rose to 60.66 U.S. cents from 60.58 cents and traded as high as 61.09.
The Fed projected a fourth-quarter U.S. contraction of 1.3 percent to 2 percent from a year earlier, according to the minutes. That compares with January projections for a contraction of 0.5 percent to 1.3 percent.
“The Fed’s downgrade of growth forecasts, occurring amid an optimistic mood, shocked the markets,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest bank. “This is leading to buying of the yen.”
Greenspan’s Worry
The Dollar Index, used by the ICE to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, declined 0.1 percent to 81.070 after dropping to 80.897, the lowest level since Dec. 31.
The dollar dropped a record 3.4 percent versus the euro on March 18, when the Fed announced plans to buy up to $300 billion in U.S. government debt to keep interest rates low and stimulate the economy, a measure known as quantitative easing.
Former Fed Chairman Alan Greenspan signaled the financial crisis isn’t over, warning that U.S. banks need to raise “large” amounts of money. “We’re on the edge and if this thing doesn’t get resolved quickly I’m worried,” Greenspan said yesterday before a meeting with House of Representatives members.
The yen advanced versus 12 of the 16 major currencies as a survey published by Barclays Capital showed Japan’s money managers judge the market’s outlook for the U.S. economy to be too positive.
About 82 percent of the 55 institutional investors who responded described the market’s outlook as either “extremely” or “somewhat” optimistic, according to the survey of Japanese funds released today.
‘Too Optimistic’
“The majority of Japanese investors believe the outlook for the economy currently factored into the U.S. markets is overly optimistic,” Yoshio Takahashi, head strategist for non- Japanese debt in Tokyo at Barclays Capital, wrote in the research note.
Traders are paying a larger premium for yen call options against the dollar, which grant the right to buy Japan’s currency, over puts that provide the right to sell it. The premium on yen calls over yen puts rose to 2.43 percent today from 2.22 percent yesterday.
New Zealand’s dollar strengthened against the greenback and the yen after the statistics department said a net 2,160 permanent migrants arrived last month on a seasonally adjusted basis, the most since January 2004.
Euro’s Gain
“The fact that migration continues to pick up is a good sign that it will provide a base of support for the housing market and the economy,” said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington. The local currency is likely to take “its cues from offshore and the Australian dollar,” he said.
The euro held near the strongest since January versus the dollar after a report showed Germany’s manufacturing industry contracted at the slowest pace in seven months.
An index based on a survey of manufacturers rose to 39.1 in May from 35.4 in April. The median estimate in a Bloomberg survey of 26 economists was for a reading of 37. A reading below 50 indicates contraction.
Better-than-forecast European data is “highlighting the improved sentiment in the region,” analysts at Standard Chartered Bank led by Callum Henderson, Singapore-based global head of currency research, wrote in a research note today. “The euro-dollar could establish new highs for 2009 beyond January’s $1.406 high.”
Investors reduced bets European policy makers will cut their 1 percent benchmark at their June 4 meeting. The implied yield on the three-month Euribor futures contract for June delivery was 1.185 percent today, from 1.105 percent at the beginning of the week.
Source: Bloomberg.com.
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