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By Ye Xie and Agnes Lovasz
Sept. 11 (Bloomberg) -- The dollar rose to a one-year high against the euro on signs global growth is slowing, and the yen strengthened on speculation investors will sell higher-yielding assets funded by loans in Japan.
The yen appreciated to the highest level against the euro since August 2006 as concern Lehman Brothers Holdings Inc. will collapse encouraged investors to pare carry trades. New Zealand's currency dropped to two-year lows against the dollar and the yen as the Reserve Bank reduced borrowing costs more than most economists forecast.
``Perception of risk has expanded globally,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. ``Longer-term investors are unwinding their short-dollar positions. The dollar has momentum with it as the capitulation goes on.'' A short position is a bet that a currency will decline.
The U.S. currency climbed 0.3 percent to $1.3956 per euro at 4 p.m. in New York, from $1.3998 yesterday, after touching $1.3882, the strongest level since Sept. 18, 2007. The yen advanced 0.8 percent to 149.58 per euro, from 150.75, after touching 147.54, the strongest in more than two years. The yen gained 0.5 percent to 107.16 per dollar, from 107.70.
The ICE's Dollar Index touched 80.375 today, the highest level since September 2007, when the Federal Reserve began cutting its target lending rate from 5.25 percent to 2 percent to stave off a recession. The index, a gauge measuring the dollar against the currencies of six U.S. trading partners, reached a low of 70.698 on March 17.
Weaker Kiwi
New Zealand's dollar, known as the kiwi, fell as much as 2.7 percent to 64.38 U.S. cents, the lowest level since September 2006, and 4 percent to 68.55 yen, the weakest since May 2006. The Reserve Bank cut its official cash rate by a half- percentage point to 7.5 percent, saying the economy is in a recession and inflation will slow.
The U.S. currency strengthened beyond 1.80 versus the Brazilian real for the first time since January and reached $1.7447 against the pound, the strongest level since April 2006.
``The global slowdown has dimmed the allure of higher yields abroad,'' wrote Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut, in a research note to clients today. ``Dollar demand sparked by U.S. investors' repatriation flows in early August has reached the point of feeding on itself.''
The U.S. dollar advanced even as people familiar with Lehman said it had entered into talks with potential buyers after Moody's Investors Service said the Wall Street firm must find a ``strong financial buyer.'' Lehman, whose shares tumbled 42 percent, declined to comment.
Trading Shift
In March, when the Fed orchestrated the sale of Bear Stearns Cos. to JPMorgan Chase & Co. and cut the discount rate, the dollar fell to record lows versus the euro.
``This marks a substantial departure from one of the key trading patterns of the last six months, namely the positive correlation between the dollar and risky assets,'' wrote Themos Fiotakis, a market strategist at Goldman Sachs Group Inc., in a research note today. ``The drivers of risk sentiment have now shifted. Non-U.S. growth concerns are now key.''
The dollar is ``on course to test'' $1.3840, a 50 percent retracement of the euro's rise from the November 2005 low of $1.1640 to the all-time high of $1.6038 set in July, based on a series of numbers known as the Fibonacci sequence, currency strategists led by Ray Farris at Credit Suisse Group AG wrote in a note today. If the dollar breaks that level, it may strengthen to $1.34, the strategists wrote.
Stronger Yen
Japan's currency rose 2.5 percent to 58.77 versus the Brazilian real and 0.8 percent to 13.02 against the South African rand on speculation investors will reduce trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent compares with 13.75 percent in Brazil and 12 percent in South Africa.
``We're in a situation where we're likely to see the current environment of slower global growth, lower interest rates, more risk reduction and deleveraging,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``All suggest to me this process of unwinding the carry trades is going to continue.''
The euro has fallen 13 percent from its all-time high as the European economy slowed and crude oil dropped more than 30 percent to $101.06 a barrel from its peak of $147.27.
``The commodity bubble is popping,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``Oil exporters have less dollars to recycle. The pace of diversification has slowed down. The dollar will remain bid.''
Industrial output in the 15 nations that use the euro probably fell 0.2 percent in July after a drop of the same amount in the previous month, according to the median forecast of 31 economists surveyed by Bloomberg News. The report from the European Union's statistics office is due tomorrow.
Sept. 11 (Bloomberg) -- The dollar rose to a one-year high against the euro on signs global growth is slowing, and the yen strengthened on speculation investors will sell higher-yielding assets funded by loans in Japan.
The yen appreciated to the highest level against the euro since August 2006 as concern Lehman Brothers Holdings Inc. will collapse encouraged investors to pare carry trades. New Zealand's currency dropped to two-year lows against the dollar and the yen as the Reserve Bank reduced borrowing costs more than most economists forecast.
``Perception of risk has expanded globally,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. ``Longer-term investors are unwinding their short-dollar positions. The dollar has momentum with it as the capitulation goes on.'' A short position is a bet that a currency will decline.
The U.S. currency climbed 0.3 percent to $1.3956 per euro at 4 p.m. in New York, from $1.3998 yesterday, after touching $1.3882, the strongest level since Sept. 18, 2007. The yen advanced 0.8 percent to 149.58 per euro, from 150.75, after touching 147.54, the strongest in more than two years. The yen gained 0.5 percent to 107.16 per dollar, from 107.70.
The ICE's Dollar Index touched 80.375 today, the highest level since September 2007, when the Federal Reserve began cutting its target lending rate from 5.25 percent to 2 percent to stave off a recession. The index, a gauge measuring the dollar against the currencies of six U.S. trading partners, reached a low of 70.698 on March 17.
Weaker Kiwi
New Zealand's dollar, known as the kiwi, fell as much as 2.7 percent to 64.38 U.S. cents, the lowest level since September 2006, and 4 percent to 68.55 yen, the weakest since May 2006. The Reserve Bank cut its official cash rate by a half- percentage point to 7.5 percent, saying the economy is in a recession and inflation will slow.
The U.S. currency strengthened beyond 1.80 versus the Brazilian real for the first time since January and reached $1.7447 against the pound, the strongest level since April 2006.
``The global slowdown has dimmed the allure of higher yields abroad,'' wrote Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut, in a research note to clients today. ``Dollar demand sparked by U.S. investors' repatriation flows in early August has reached the point of feeding on itself.''
The U.S. dollar advanced even as people familiar with Lehman said it had entered into talks with potential buyers after Moody's Investors Service said the Wall Street firm must find a ``strong financial buyer.'' Lehman, whose shares tumbled 42 percent, declined to comment.
Trading Shift
In March, when the Fed orchestrated the sale of Bear Stearns Cos. to JPMorgan Chase & Co. and cut the discount rate, the dollar fell to record lows versus the euro.
``This marks a substantial departure from one of the key trading patterns of the last six months, namely the positive correlation between the dollar and risky assets,'' wrote Themos Fiotakis, a market strategist at Goldman Sachs Group Inc., in a research note today. ``The drivers of risk sentiment have now shifted. Non-U.S. growth concerns are now key.''
The dollar is ``on course to test'' $1.3840, a 50 percent retracement of the euro's rise from the November 2005 low of $1.1640 to the all-time high of $1.6038 set in July, based on a series of numbers known as the Fibonacci sequence, currency strategists led by Ray Farris at Credit Suisse Group AG wrote in a note today. If the dollar breaks that level, it may strengthen to $1.34, the strategists wrote.
Stronger Yen
Japan's currency rose 2.5 percent to 58.77 versus the Brazilian real and 0.8 percent to 13.02 against the South African rand on speculation investors will reduce trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent compares with 13.75 percent in Brazil and 12 percent in South Africa.
``We're in a situation where we're likely to see the current environment of slower global growth, lower interest rates, more risk reduction and deleveraging,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``All suggest to me this process of unwinding the carry trades is going to continue.''
The euro has fallen 13 percent from its all-time high as the European economy slowed and crude oil dropped more than 30 percent to $101.06 a barrel from its peak of $147.27.
``The commodity bubble is popping,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``Oil exporters have less dollars to recycle. The pace of diversification has slowed down. The dollar will remain bid.''
Industrial output in the 15 nations that use the euro probably fell 0.2 percent in July after a drop of the same amount in the previous month, according to the median forecast of 31 economists surveyed by Bloomberg News. The report from the European Union's statistics office is due tomorrow.
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