07 Oct 2009
Oct. 7 (Bloomberg) -- The dollar rose for a fifth day against the pound after a Federal Reserve official said the central bank should start raising interest rates "sooner rather than later," boosting demand for U.S. assets.
The dollar gained for the first time in four days against the euro as a technical indicator signaled the U.S. currency's decline was excessive and as traders judged its slide was overdone. New Zealand's currency gained as Asian stocks continued a global rally and Auckland-based Fonterra Cooperative Group Ltd. said milk powder prices to a 13-month high.
"The Fed is showing signs to exit, which is positive for the dollar," said Toshiya Yamauchi, a Tokyo-based manager of the foreign-exchange margin trading department at Ueda Harlow Ltd. "While U.S. economic data continue to show mixed results, it's clear the economy has reached the bottom and is beginning to rebound."
The dollar rose to $1.5900 per pound at 1:10 p.m. in Tokyo from $1.5922 in New York yesterday. The greenback gained to $1.4709 per euro from $1.4722 yesterday, when it reached $1.4762, the weakest level since Sept. 24. The U.S. currency strengthened to 88.88 yen from 88.82 yen. The euro was at 130.62 yen from 130.76 yen.
The dollar advanced against 13 of its 16 major counterparts after Kansas City Fed President Thomas Hoenig yesterday said raising interest rates wouldn't derail the U.S. economic recovery.
"Even if we were to start immediately, much time would pass before incremental increases could be considered tight or even neutral policy," Hoenig said in a speech in Denver. "I would not support a tight monetary policy in the current environment, but my experience tells me that we will need to remove our very accommodative policy sooner rather than later."
Fed Comments
Hoenig's spoke after Australia became the first among Group of 20 economies to raise borrowing costs since the start of the financial crisis. His comments echoed those by Fed Governor Kevin Warsh, who said on Sept. 25 the central bank may need to tighten "with greater force than is customary," and Richmond Fed President Jeffrey Lacker, who said on Oct. 1 that rates may need to be raised even with unemployment near 10 percent.
The euro weakened as the currency's 14-day stochastic oscillator versus the dollar rose to 66.5 yesterday from 45.9 on Oct. 5, nearing the 80 level some traders use as a signal that an asset has risen too quickly and is poised to decline.
Short-Covering
"The dollar is undergoing some short-covering as its losses may be overdone a bit," said Nobuaki Kubo, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of New York-based Brown Brothers Harriman & Co. "However, the greenback's rebound is likely to be limited, given that Asian stocks are rising."
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in an asset's value. A short position is a bet an asset will decline.
Gains in the dollar were tempered as analyst forecasts compiled by Bloomberg show the Fed will start raising its benchmark rate in the third quarter of 2010, as will the European Central Bank.
"We are still predicting that the Fed will be on hold until 2011 on interest rates," said Ray Attrill, global research director at Forecast Ltd. in Sydney. "That will continue to drive down the dollar on the basis that the Fed will probably be among the last to exit."
The ECB will hold its main refinancing rate at a record low of 1 percent at tomorrow's meeting, and the Bank of England will keep its rate at a record low of 0.5 percent, according to economists in Bloomberg News surveys. The Fed funds target range is zero to 0.25 percent.
Milk Prices
New Zealand's currency gained against all 16 of its most- traded counterparts after Fonterra, the world's largest dairy exporter, said milk powder for December delivery rose 5.1 percent to $3,019 a metric ton at auction yesterday. That is the highest price since September last year.
"The Fonterra news caused the kiwi to jump," said Tim Kelleher, vice president of institutional banking and markets in Auckland at Commonwealth Bank of Australia. "Unless we see the U.S. dollar turn around or equities weaken, the Australian and kiwi dollars will carry on higher, with dips very well supported."
The so-called kiwi rose 0.1 percent to 73.48 U.S. cents and traded at 64.26 yen from 65.23 yen yesterday.
Japan's Nikkei 225 Stock Average rose 1.3 percent, and the MSCI Asia Pacific Index of regional shares advanced 1.5 percent. The Standard & Poor's 500 Index gained 1.4 percent in New York.
