June 9 (Bloomberg) -- The dollar fell against the euro for the first time in three days as speculation the global recession may be ending damped demand for the U.S. currency as a refuge.
The pound advanced versus the dollar as Britain’s political turmoil eased and house prices showed signs of stabilizing last month. Goldman Sachs Group Inc. recommended that its clients buy the euro versus the dollar, citing a recovery in global growth expectations and a “broader pickup” in demand for higher- yielding assets.
“Investment is slowly leaking out of the dollar, into emerging markets and other higher-yielding countries on signs of a green-shoot recovery,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank. “We are in a long-term trend of a controlled decline in the dollar.”
The dollar slid 1 percent to $1.4039 against the euro at 12:07 p.m. in New York, from $1.39 yesterday. The yen traded at 137 versus the euro, compared with 136.89. The dollar decreased 0.9 percent to 97.56 yen from 98.49.
The traded-weighted Dollar Index dropped 0.8 percent to 80.931 after the U.S. government approved 10 banks to buy back $68 billion of government shares. Treasury Secretary Timothy Geithner called the repayments an “encouraging sign of financial repair.”
The index, used by the ICE to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, reached this year’s low of 78.334 on June 2.
Canadian Dollar
Canada’s dollar and Norway’s krone were among the best performers against the dollar among major currencies today after crude oil rallied to almost $70 a barrel.
The Canadian dollar gained 1 percent to C$1.1051 versus the U.S. dollar, while the krone rose 1.3 percent to 6.3581. The Canadian dollar appreciated 18 percent in the past three months, and the krone advanced 13 percent. Crude oil is Norway’s biggest export, while raw materials account for more than half of Canada’s export revenue.
Brazil’s real rose 1.1 percent to 1.9422 versus the dollar after a government report showed Latin America’s largest economy contracted in the first quarter less than economists forecast. The real appreciated 19 percent versus the greenback this year in the best performance among the 16 most-traded currencies tracked by Bloomberg.
“It’s still a risk-positive story,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. “We haven’t seen the top-off of the risky currencies. As long as you have positive surprises in economic readings, assets go up and confidence goes up. It creates a positive feedback.”
Stronger Lats
Latvia’s currency gained the most in three years, spurring a rally in eastern European currencies as plans to cut state spending paved the way for the Baltic country to receive its next international bailout payment.
The lats strengthened as much as 0.9 percent to 0.6990 per euro, the biggest jump since June 2006, and approached the upper limit of the country’s peg to Europe’s single currency.
Latvia is battling to keep its currency within the 1 percent band required of the pre-euro exchange-rate mechanism and to meet budget-cut demands for its 7.5 billion euros ($10.4 billion) International Monetary Fund-led bailout.
Sweden’s krona was the biggest gainer against the euro today among major currencies, appreciating 1 percent to 10.8045. Swedish banks have about $75 billion in loans to the Baltic states, according to the Bank for International Settlements in Basel, Switzerland.
Goldman on Euro
The 16-nation euro will rise to $1.45, said Goldman Sachs in a research note today, saying the Federal Reserve will refrain from raising the target rate for overnight lending between banks “for a considerable period of time” in response to a slow recovery.
“The timing is now opportune,” Goldman Sachs wrote. “We think the level of growth will remain below trend, and U.S. rates will be kept low for a considerable period of time.”
The dollar rose the most against the euro in five weeks on June 5 after the Labor Department reported that U.S. job cuts slowed to 345,000 in May, the lowest level in eight months.
The employment report raised speculation that the Fed will boost the target lending rate to at least 0.5 percent by the end of the year. Fed funds futures contracts showed today a 45 percent chance of a rate increase by November, compared with 27 percent odds a week ago.
Dealers’ Fed View
Policy makers will keep the target lending rate in a range of zero to 0.25 percent this year, according to a Bloomberg News survey of 15 of the 16 primary dealers of U.S. government securities that trade with the central bank. A majority predict no increase until at least the second half of 2010.
The pound advanced against the dollar for a second day, increasing 1.4 percent to $1.6274 after the Royal Institution of Chartered Surveyors said the number of respondents in a monthly survey saying home values fell exceeded those reporting gains by 44.1 percentage points, the best reading since November 2007.
Sterling also appreciated on speculation Prime Minister Gordon Brown fended off calls to step down following a series of ministerial resignations and a drubbing in local and European Union elections.
The greenback decreased 6.6 percent against the euro in May, the biggest monthly drop this year, on concern a quadrupling of the U.S. budget deficit will undermine demand for dollar-denominated assets.
The U.S. will issue a record $3.25 trillion of debt in the fiscal year ending Sept. 30, according to Goldman Sachs, one of the 16 primary dealers that are obliged to participate in government auctions. The Treasury plans to sell $65 billion of notes and bonds this week, including a record-tying $35 billion of three-year debt today.
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
Last Updated: June 9, 2009 12:13 EDT
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