US Dollar = Rouble 0.0332
Dollar Advances to Two-Week High on Russia’s Treasury Holdings
Sept. 29 (Bloomberg) -- The dollar rose to a two-week high versus the euro as Russia said it will maintain the share of U.S. Treasuries in its international currency reserves, reducing concern central banks will diversify away from the greenback.
Sterling gained the most versus the euro since June as a report showed the U.K.’s economy shrank less than previously estimated and an index of retail sales rose to the highest level in five months. The dollar pared its gain versus the yen as U.S. consumer confidence unexpectedly fell this month.
“There’s no evidence that central banks are diversifying away from the dollar quickly,” said Steven Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. “No one wants to see a collapse of the dollar.”
The dollar climbed 0.5 percent to $1.4547 per euro at 10:22 a.m. in New York, from $1.4622 yesterday, and touched $1.4527, the strongest level since Sept. 14. The yen depreciated 0.6 percent to 90.16 per dollar, from 89.63, after reaching 88.24 yesterday, the strongest level since Jan. 23. Japan’s currency was little changed at 131.21 per euro.
Russia will keep the share of U.S. Treasuries in its international reserves at about 30 percent, the central bank said. Bank Rossii First Deputy Chairman Alexei Ulyukayev told reporters in Moscow today that Russia will avoid diversifying into Australian and Canadian dollars because of liquidity concern, the central bank said.
‘Boost’ for Dollar
“Russia suggested that it would not cut U.S. Treasuries from reserves,” said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second- largest bank. “That gave the dollar a bit more of a boost in the short term this morning.”
The BRIC nations, made up of Brazil, Russia, India and China, considered in June buying each other’s bonds and swapping currencies to reduce dependence on the greenback. The dollar declined to a one-year low of $1.4844 per euro on Sept. 23.
The ruble was little changed at 30.1485 per dollar after Bank Rossii cut its refinancing rate to 10 percent from 10.5 percent. The bank lowered borrowing costs seven times since April 24, including a quarter-point reduction on Sept. 14.
The New York-based Conference Board reported that its U.S. consumer confidence index decreased to 53.1 this month from a revised 54.5 in August. The median forecast of 78 economists in a Bloomberg News survey was for an advance to 57.
The pound gained as much as 1.1 percent to 91.04 pence per euro, the biggest intraday increase since June 1, as the Office for National Statistics said gross domestic product contracted 0.6 percent in the second quarter, compared with a previous estimate of a 0.7 percent drop.
U.K. Retail
Retailers saying sales increased from a year earlier outnumbered those reporting declines by 3 percentage points, compared with a reading of minus 16 percentage points in August, the Confederation of British Industry’s September survey showed.
The pound also advanced after Reuters cited unidentified economists who attended a meeting at the Bank of England today in reporting that the bank has no immediate plans to change the way it pays interest on the reserves commercial banks keep with the central bank. Policy makers also said that they were frustrated by the way markets interpreted Governor Mervyn King’s comments on the pound last week, said Reuters, citing the economists. The Bank of England declined to comment.
Sterling dropped to a five-month low against the euro last week after the Newcastle Journal reported that King said the currency weakness is “very helpful” in aiding in rebalancing the U.K.’s economy.
Fujii on Yen
The yen fell against the dollar for the first time in four days after Finance Minister Hirohisa Fujii said he may intervene in foreign-exchange markets.
“If the currency market moves abnormally, we may take necessary steps in the national interest,” Fujii said at a news conference in Tokyo today. He denied saying he tolerates a stronger yen.
As the Democratic Party of Japan, or DPJ, came into power for the first time two weeks ago, Fujii said the idea of a weaker yen helping the nation’s exports is “absurd” and he opposed governments stepping into currency markets “in principle.” Central banks intervene in foreign-exchange markets by selling and buying currencies.
Japan’s Toyoo Gyohten, who is slated to become an adviser to Fujii, expressed support for the dollar in an interview yesterday in Tokyo, indicating the DPJ may keep buying U.S. Treasuries, extending the policy of the former government.
The yen advanced 16 percent versus the dollar in the past year, making Japanese products shipped abroad more expensive and eroding the value of exporters’ repatriated profits.
Goldman Sachs View
Risks of further dollar weakness are rising, and the exact timing of the subsequent recovery remains uncertain, wrote Thomas Stolper, a London-based currency strategist at Goldman Sachs Group Inc., in a note to clients today.
The Federal Reserve will be among the last major central banks to raise interest rates, putting a recovery of the dollar at risk, according to Stolper. Foreign investors will be reluctant to invest more in the U.S., and the government deficit will keep widening, he added.
While the dollar may stabilize in a range between $1.40 and $1.50 per euro, “the risks look increasingly skewed towards a slightly weaker dollar consolidation range in most crosses,” Stolper wrote. Goldman Sachs maintains a 12-month forecast for the dollar to appreciate to $1.35 per euro, Stolper wrote.
