Dollar Falls as Rebound in Oil and Stocks Saps Safety Demand

Aug. 28 (Bloomberg) -- The dollar fell against the euro, capping a two-month drop, as a rebound in crude oil and stocks reduced demand for the relative safety of the U.S. currency.

The greenback weakened for a second day against the 16- nation currency before a report forecast to show a gauge of consumer confidence in the U.S. rose this month, adding to evidence that the recession is easing.

“The overall picture that the global economy is gradually improving remains intact,” said Tomokazu Matsufuji, a dealer in Tokyo at SBI Liquidity Markets Co., a unit of financier SBI Holdings Inc. “The safe-haven currencies are likely to weaken against higher-yielding ones as risk sentiment is on the mend.”

The dollar traded at $1.4368 per euro at 8:39 a.m. in Tokyo from $1.4341 yesterday in New York. The dollar bought 93.63 yen from 93.52 yesterday when it touched 93.22, the lowest level since July 22. The euro was at 134.53 yen from 134.14 yesterday.

The European currency reached the most in almost three weeks at $1.4406 yesterday as the Standard & Poor’s 500 Index added 0.3 percent after earlier dropping as much as 1.2 percent.

The $1.4280 level was significant because that’s where the euro resumed declines on Aug. 26 after trying to overcome a previous loss, said Andrew Chaveriat, a currency strategist at BNP Paribas SA in New York. Traders typically place so-called stop losses at key levels to protect themselves when a bet moves in the opposite direction.

Consumer Confidence

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, dropped as much as 1 percent to 77.851 yesterday, the biggest intraday decrease since Aug. 3.

A Bloomberg News survey of economists showed that the Reuters/University of Michigan gauge on Aug. 28 is projected to rise. The barometer of confidence among U.S. consumers probably rose to 64.0 in August from 63.2 in the previous month.

Adding to signs that the recession is easing, the world’s largest economy contracted less than economists forecast as companies reduced inventories, spending started to climb and profits grew, a Commerce Department report said yesterday.

Gross domestic product shrank 1 percent in the three months ended in June, matching the initial estimate on July 31. The contraction was less than the 1.5 percent median forecast in a Bloomberg News survey of 75 economists.

Canada’s currency advanced as much as 1.3 percent to C$1.0832 versus its U.S. counterpart yesterday in the biggest intraday climb since Aug. 12. Oil generates more than half of Canada’s export revenue.

Crude oil for October delivery rose 1.2 percent to $72.25 a barrel on the New York Mercantile Exchange after losing as much as 2.2 percent.

The yen fell after reports today showed Japan’s unemployment rate rose to a record 5.7 percent in July, while consumer prices dropped at an unprecedented 2.2 percent.