This is a hidden signal that the dollar will stop falling
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June 2 (Bloomberg) — The dollar weakened beyond $1.43 against the euro for the first time in 2009 on bets record U.S. borrowing will undermine the greenback, prompting nations to consider alternatives to the world’s main reserve currency.
The 16-nation euro gained for a fourth day versus the dollar as the Russian government said emerging-market leaders may discuss the idea of a supranational currency. The pound rose to the highest level since October and the Canadian dollar traded near an eight-month high on speculation signs of a recovery in U.S. housing will spur higher-yield demand.
“There’s been a lot of talk out of Russia about a new global currency, and that’s contributing toward this latest bout of dollar weakness,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. “These latest comments are just adding to the general dollar weakness we’ve seen recently.”
The dollar slid 0.9 percent to $1.4284 per euro at 12:44 p.m. in New York, from $1.4159 yesterday. It touched $1.4314, the weakest level since Dec. 29. The dollar fell 0.9 percent to 95.74 yen, from 96.59. The euro was little changed at 136.76 yen, compared with 136.78.
Sterling rose as much as 0.8 percent to $1.6577, the highest level since Oct. 30, while the Canadian dollar advanced 1.1 percent to C$1.0819, near the strongest level since Oct. 3.
Pending sales of existing homes in the U.S. climbed 6.7 percent in April, the National Association of Realtors said today. The median forecast of 32 economists surveyed by Bloomberg News was a 0.5 percent gain.
Dollar Index
The Dollar Index, which ICE uses to track the currency’s performance against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, fell as much as 0.9 percent to 78.44, the lowest level since Dec. 18.
Russian President Dmitry Medvedev may discuss his proposal to create a new world currency when he meets counterparts from Brazil, India and China this month, Natalya Timakova, a spokeswoman for the president, told reporters by phone today. Medvedev first proposed seeking alternatives to the U.S. dollar as a reserve currency in March.
The Dollar Index reached 89.62 on March 4, the highest level since 2006, as the global recession spurred investors to take refuge in Treasuries including bills.
Demand for the record amount of debt the U.S. is selling will be sufficient, Treasury Secretary Timothy Geithner said in an interview today with state media outlets in China.
China has a “very sophisticated understanding” of why the U.S. is running up deficits, Geithner said in Beijing, pledging to rein in borrowing later.
There’s no replacement currency for the dollar in the short term, Guo Shuqing, former head of China’s foreign-exchange administrator, said in an interview with the Financial Times for an article published yesterday.
‘Opportunity to Sell’
“The market is looking for the opportunity to sell the U.S. dollar,” said Jack Spitz, a managing director for foreign exchange at National Bank of Canada in Toronto. “It took decades for the euro to be established. I can only imagine how long it would take for the BRIC countries to put together a currency.”
The dollar also declined on speculation “smaller” central banks started today’s selling of the greenback, said Sebastien Galy, a currency strategist at BNP Paribas SA in New York.
“If people believe that there is official pressure behind it, then obviously it puts pressure on euro-dollar on the upside,” Galy said. “Small central banks have an incentive in doing something because if they’re the first movers, they will not suffer by far as much as the big ones.” Galy predicted the 16-nation currency may reach $1.4360 today, a peak last reached in December.
Europe’s Unemployment
The euro fell earlier versus the yen as Europe’s jobless rate jumped in April to the highest level in almost 10 years. Unemployment in the 16-member euro region increased to 9.2 percent from 8.9 percent in March, the European Union statistics office in Luxembourg said today.
ECB President Jean-Claude Trichet said last month it would buy 60 billion euros of covered bonds. The Federal Reserve, Bank of England and Bank of Japan are already purchasing government and corporate bonds in a policy known as quantitative easing, which is intended to keep borrowing costs low. The ECB will keep its benchmark rate unchanged at 1 percent on June 4, according to a Bloomberg survey.
The euro’s rally against the dollar may be entering its “last stage,” and investors would likely benefit from selling the 16-nation currency against the greenback, according to UBS AG, the world’s second-biggest foreign-exchange trader.
Europe’s currency is poised to weaken toward $1.30, analysts led by Mansoor Mohi-uddin, Zurich-based chief currency strategist at UBS, wrote in a note to clients yesterday. The analysts reiterated forecasts for the euro to trade at $1.40 in one month’s time and then weaken.
“We remain positive on the U.S. dollar and think that the greenback is likely in its final stage of weakness,” the analysts wrote. “Equity and bond flows have the potential to surprise and could lend support to the dollar.”
That’s funny.
Russia wants a new currency to replace the USD.
While I agree that China does have a sophisticated understanding of the US Peso’s weakness I doubt that Russia would want anything other than a currency that’s backed by something they have vast quantities of – say oil.
Welcome to post-soviet Russia, where Gangsterism poses as capitalism.
I agree which is why I think this is just rhetoric.
Now if they could convince others to trade oil in multiple currencies then they might have a chance.
Just as blind speculation I think this is a signal that dollar selling will ease short term…let’s see what happens.
pissed at myself for not jumping on the first start of this move. at this point I sense the dollar move has done moved. but how many times has it overrun in the past ? all of them.
$1.47 USDEUR will get hit before it reverses. sensible currency experts say 1.42 but they are always wrong.
We shall see. I’m not a big fan of trading currencies lately. A lot of volatility never seen b4. But with clear momentum I do jump on every now & then.