Dollar Trades Near One-Year Low Versus Euro on Risk Appetite

Sept. 18 (Bloomberg) -- The dollar may fall, capping a second-straight weekly decline against the euro, as signs the global economic recovery is accelerating spur investors to sell the greenback and buy higher-yielding assets.

The Dollar Index, which tracks the U.S. currency against six major trading partners, yesterday dropped to the weakest level in almost a year before reports next week forecast to show a gauge of leading indicators for the U.S. economy improved in August and German business confidence rose for a sixth month in September. New Zealand’s dollar headed for a 10th consecutive week of advances, matching the record winning posted in May 1999.

“As the economy improves and credit woes ease, investors are more inclined to float part of their huge dollar holdings,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., a unit of France’s third-largest bank. “Riskier assets as well as the currencies of emerging markets and commodity-producing countries benefit from this at the expense of the dollar.”

The dollar traded at $1.4732 per euro at 8:43 a.m. in Tokyo from $1.4741 yesterday in New York. It reached $1.4767 yesterday, the weakest level since Sept. 25, 2008. The yen was at 91.17 per dollar from 91.08 yesterday. Japan’s currency fetched 134.31 per euro from 134.28.

Australia’s currency traded at 87.06 U.S. cents from 87.28 cents in New York yesterday, when it touched 87.75, the highest since Aug. 22, 2008. New Zealand’s dollar bought 70.98 U.S. cents from 71.07 in New York yesterday, when it reached 71.58, also the most since Aug. 22, 2008.

Borrowing Costs

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.

The cost of three-month loans in dollars between banks held yesterday at a record low of 0.292 percent, according to the British Bankers’ Association. The London interbank offered rate, or Libor, is lower than that of the yen and Swiss franc, making the dollar the cheapest funding currency.

The Dollar Index sank yesterday as low as 76.010, the weakest level since Sept. 22, 2008. The gauge dropped about 15 percent from its 2009 high of 89.624 reached in March as investors sought refuge from the global financial crisis.

Leading Indicators

The Conference Board’s leading indicators, which show the outlook for the next three to six months, probably rose 0.7 percent in August, climbing for a fifth month, according to a Bloomberg News survey of economists before the New York-based research group releases the data on Sept 21.

The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 92.0 in September from 90.5 in the previous month, according to a separate Bloomberg News survey before the institution releases the data on Sept. 24.

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, meaning optimists outnumbered pessimists.

The euro’s half-year gain versus the dollar may stall, according to a technical indicator. The 14-day relative strength index on the euro-dollar exchange rate climbed to 74 yesterday, the highest level since March 19. A reading of 70 indicates a rally is approaching an extreme and a reversal may be imminent.

“The dollar has gone down hard enough, fast enough where there is going to be a pullback,” said Lane Newman, director of currency trading at ING Financial Markets LLC in New York.