Tuesday, December 15, 2009

Dollar, Yen May Fall as Dubai Concerns Ease, Pare Safety Demand

Dec. 15 (Bloomberg) -- The dollar may decline for a second day against the euro as signs of a sustained economic recovery and receding concerns of a default in Dubai curb demand for the greenback as a refuge.

The yen, another funding currency, fell against 12 out of its 16 most-traded counterparts before reports this week forecast to show industries in the U.S. boosted production and housing starts rebounded. The pound may rise for a second day against the greenback after Abu Dhabi’s bailout of a Dubai World unit sparked an advance in U.S. stocks to the highest levels in 14 months.

“Underlying risk appetite remains intact as credit fears wane and the economy looks to be on the mend,” said Minoru Shioiri, Tokyo-based chief manager of foreign-exchange trading at Mitsubishi UFJ Securities Co. “Money will continue to favor higher-yielding currencies over cheaper ones.”

The dollar traded at $1.4655 per euro at 8:34 a.m. in Tokyo from $1.4656 yesterday in New York. It reached $1.4586 on Dec. 11, the strongest level since Oct. 5. The yen was at 129.97 per euro from 129.90 yesterday. The dollar fetched 88.68 yen from 88.62 in New York. The pound was at $1.6307 versus $1.6311 yesterday.

U.S. industrial output probably rose 0.5 percent last month following a 0.1 percent increase in the previous month, according to a Bloomberg News survey ahead of a Federal Reserve report today. U.S. builders broke ground on 575,000 houses at an annual pace, up 8.7 percent, according to a separate survey.

Dubai Debt

Asian and European shares rallied as Abu Dhabi’s $10 billion pledge allowed Dubai World’s Nakheel real-estate unit to avoid default on $4.1 billion of bond payments. Markets tumbled last month as Dubai said it was starting talks with its lenders to restructure debt accumulated during the emirate’s six-year real-estate boom.

Dubai’s pledge to adopt global standards on transparency and creditor protection is a “giant step in the right direction” and the worst of the emirate’s debt crisis is over, said investor Mark Mobius, who oversees more than $30 billion as chairman of Templeton Asset Management Ltd.

The Standard & Poor’s 500 Index rose for a fourth day yesterday, increasing 0.7 percent to the highest since October 2008.

‘Good Data’

Losses in the dollar may be tempered on bets improving economic fundamentals may allow the Federal Reserve to seek an exit from credit easing measures next year.

“Why is good data suddenly supporting the dollar?” a team of analysts led by Ulrich Leuchtmann at Commerzbank AG in Frankfurt wrote in a report. “This development makes sense if one relies on good U.S. data eventually leading to an end of the Fed’s zero rate policy. Previously rate rises had moved into the very distant future so that the effect had been ignored. This is obviously changing now.”

Futures on the Chicago Board of Trade indicated a 48 percent chance the Fed will raise the target lending rate by at least a quarter-percentage point by its June meeting. The odds were 44 percent a month ago. The central bank is next scheduled to decide on borrowing costs at its two-day meeting starting today.

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