Dollar Trades Near One-Year Low Versus Euro as Recession Eases

Sept. 17 (Bloomberg) -- The dollar traded near a one-year low versus the euro on speculation the global recession is easing, curbing demand for safe-haven currencies.

The Dollar Index was near the weakest in 12 months as Asian stocks extended a global rally and before reports forecast to show U.S. housing starts rose and manufacturing improved. The yen fell against all 16 most-active currencies after data showed Japanese purchases of overseas bonds reached a four-year high, signaling increased demand for higher-yielding assets.

“Risk appetite is on the mend as the outlook for the global economy brightens,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “The dollar, now the most-favored funding currency because of its ample liquidity, will weaken.”

The dollar traded at $1.4715 per euro at 9:18 a.m. in Tokyo from $1.4709 yesterday in New York where it reached $1.4737, the weakest level since Sept. 25, 2008. The yen was at 91.16 per dollar from 90.93 yesterday, when it hit 90.13, the strongest level since Feb. 12. Japan’s currency fetched 134.21 per euro from 133.78.

Australia’s currency traded at 87.37 U.S. cents from 87.35 cents yesterday, when it touched 87.50 cents, the most since Aug. 22, 2008. New Zealand’s dollar was at 71.37 U.S. cents from 71.41 cents in New York, where it reached 71.53, also the strongest since Aug. 22, 2008.

Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Rising Stocks

The Nikkei 225 Stock Average rose 1 percent and the MSCI Asia Pacific Index of regional shares gained 0.8 percent.

The Philadelphia Federal Reserve Bank will report today that its index of the region’s manufacturing activity advanced this month to the highest level since 2007, according to the median forecast of 55 economists in a Bloomberg News survey. The index is expected to increase to 8 from 4.2 in August, with a positive reading signaling expansion.

Adding to signs that the recession is abating, U.S. builders broke ground on 598,000 new homes last month at an annual rate from 581,000 in the previous month, according to a separate Bloomberg News survey before the Commerce Department releases the data today.

The Bloomberg Professional Global Confidence Index rose to 58.54 this month from 58.12 in August. The index exceeded 50 for a second month, which means optimists outnumbered pessimists. Measures of confidence in France and Germany surged after their economies unexpectedly returned to growth last quarter.

Dollar Index

The Dollar Index, which tracks the U.S. currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell as much as 0.5 percent to 76.151 yesterday, the lowest level since Sept. 23, 2008. The gauge has fallen 15 percent from its 2009 high of 89.624 reached in March. It was little changed at 76.312 today.

The broad gauge for the dollar declined after the London interbank offered rate, or Libor, for three-month dollar loans fell to a record low of 0.292 percent yesterday. It was as high as 4.82 percent in October 2008, following the collapse of Lehman Brothers Holdings Inc. the month before.

“Given the fragility of the U.S. economy, the Fed can’t normalize credit and monetary easing policies,” said Mitsuru Saito, chief economist in Tokyo at Tokai Tokyo Securities Co. “The bulk of highly liquid dollar assets will continue to flow into other currencies or commodities, putting downward pressure on the dollar.”

The yen fell as Japanese investors bought 1.66 trillion yen ($18.2 billion) in overseas bonds and notes in the week ended Sept. 12, the most since June 2005, the Ministry of Finance said today.