Tuesday, February 23, 2010

Dollar Falls Versus Euro on Bets Fed Will Keep Rates on Hold

Feb. 23 (Bloomberg) -- The dollar fell against the euro on prospects the Federal Reserve will hold its target interest rate near zero to sustain a recovery in the world’s biggest economy.

The U.S. currency dropped against the yen for a third day on speculation Fed Chairman Ben S. Bernanke will tell Congress tomorrow that last week’s increase in the discount rate isn’t intended to drive up borrowing costs. The euro was near an 11- month low versus the Swiss franc as the International Monetary Fund sent a staff member to Athens to provide assistance, adding to concern over the nation’s debt crisis. The yen rose against Brazil’s real and the South Korean won as Asian stocks fell.

“Fed rate-hike expectations have continued to ease,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This is providing something of a drag for the dollar.”

The dollar fell to $1.3620 per euro at 1:17 p.m. in Tokyo from $1.3596 in New York yesterday. It touched $1.3444 on Feb. 19, the highest since May 18. The greenback fetched 91.03 yen from 91.14 yen. The yen was at 124.00 per euro from 123.92.

The U.S. currency fell against 13 of its 16 major counterparts after Federal Reserve Bank of San Francisco President Janet Yellen said the U.S. economy still needs low interest rates to gain strength.

“When the day comes to start raising rates again, we have tools at the ready,” Yellen said in the text of a speech yesterday in San Diego. “For the time being, the economy still needs the support of extraordinarily low rates.”

IMF, Greece

The IMF said in an e-mailed statement yesterday “at the request of the EU Commission and at the invitation of the Greek authorities, a Fund staff member is in Athens this week to provide assistance to a European Union Commission team.”

Japan’s currency strengthened 0.1 percent against the real and 0.1 percent versus the won as the Nikkei 225 Stock Average fell 0.4 percent.

The real’s value against the yen had a correlation of 0.90 with the Nikkei 225 in the past year. A reading of 1 would mean the two moved in lockstep. The yen typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive because the nation doesn’t have to rely on overseas lenders.

Losses in the dollar were limited as economists surveyed by Bloomberg said sales of new U.S. homes rose 3.1 percent in January after dropping 7.6 percent in December. The Commerce Department reports the data tomorrow. Bookings for durable goods climbed 1.5 percent last month, another Bloomberg survey showed before the Commerce Department’s report on Feb. 25.

“The dollar remains firm as good economic reports put upward pressure on yields, especially long-term ones,” said Minoru Shioiri, chief manager of foreign-exchange trading at Mitsubishi UFJ Securities Co. in Tokyo.