Article from – Bloomberg.com
Oliver Biggadike and Ye Xie – August 13, 2009
The dollar declined versus the yen after a report showed U.S. retail
sales unexpectedly fell last month, adding to concern the nation’s
consumers remain reluctant to increase spending.
The euro advanced versus the dollar as the yield advantage of U.S. bonds
over German securities narrowed and economic data showed Europe’s
economy shrank less than economists predicted in the second quarter.
The Australian and Canadian dollars plunged against the yen after the
retail sales data, recovering from the loss as stocks gained.
“The retail sales report highlights that there’s still significant
headwinds for consumers,” said Vassili Serebriakov, a currency
strategist at Wells Fargo Bank in New York. “The euro-zone data
sparked enthusiasm of recovery and risk seeking. That was partially reversed
after the retail sales number.”
The dollar declined 0.8 percent to 95.26 yen at 1:22 p.m. in New York,
from 96.06 yesterday. The greenback dropped 0.7 percent to $1.4285 per
euro from $1.4188. Europe’s currency traded at 136.06 yen, compared
with 136.32 yen.
U.S. retail sales fell 0.1 percent in July, after gaining a revised
0.8 percent the prior month, the Commerce Department said in Washington.
The median forecast of 76 economists in a Bloomberg News survey was for
an increase of 0.8 percent. The Standard & Poor’s 500 Index
fluctuated, swinging between a 0.6 percent gain and 0.5 percent loss.
“You get a number like this and you have people sitting down and
scratching their heads” about the dollar’s reaction, said
Lauren Rosborough, a foreign-exchange strategist in London at Westpac
Banking Corp. “Everyone expected retail sales, in particular the
headline number, to be exceptionally good and going into a more risk-positive
sentiment today.”
German Growth
The euro gained after the European Union’s statistics office in
Luxembourg said gross domestic product fell 0.1 percent from the first
quarter. Analysts estimated a decline of 0.5 percent in the period, a
Bloomberg survey showed.
“We’re getting pretty excited about these numbers, seeing
big hitters in euro land moving back into the black, and that’s
why the euro is higher,” said Neil Jones, head of European hedge-fund
sales at Mizuho Corporate Bank Ltd. in London.
The euro rose after Germany’s Federal Statistics Office said gross
domestic product expanded a seasonally adjusted 0.3 percent during the
second quarter. France’s economy grew by the same amount in that
period, statistics office Insee said today in Paris. Economists expected
contractions in Germany and France by 0.2 percent and 0.3 percent, Bloomberg
surveys show.
‘Reaching a Bottom’
Yields on 10-year German bonds lagged behind the decline in U.S. yields
triggered by the retail sales report, falling four basis points to 3.42
percent. The extra yield earned by holding U.S. notes versus similar-maturity
German government debt narrowed seven basis points, or 0.07 percentage
point, to 19 basis points.
The data “may really lend credence to the view that we could be
reaching a bottom,” Ashraf Laidi, chief market strategist at CMC
Markets in London, said in an interview on Bloomberg Television. “In
the short term we might see a nice pop in the euro.”
The yen had weakened earlier after the European data sparked investors
to seek higher-yielding assets. Japan’s currency fell 0.1 percent
to 80.12 against Australia’s currency.
The dollar declined yesterday against most major currencies after the
Federal Reserve said it will keep interest rates “exceptionally
low” for an extended period and wind down purchases of Treasuries
by the end of October.
Mean-Reversion Trades
Swings in currencies were exaggerated as investors were pushed out of
bets that foreign-exchange rates would return to a medium-term average,
said Sebastien Galy, a currency strategist at BNP Paribas SA in New York.
The euro approached its highs against the dollar set before the Aug.
7 payrolls report, prompting strategists to question how long risk would
continue to drive currency markets, he said.
“The mean-reverters, basically the ones betting on corrections,
are getting squeezed out very fast,” Galy said in an interview
from New York. “You have a lot of money that continuously whenever
things improve a little bit just piles into risky assets. It’s
not risk-on/risk-off. It’s a failure of mean reversion.”
Canada’s currency touched C$1.0793 against the dollar, the strongest
level this week, as Europe’s GDP data pushed crude oil and stocks
higher. U.S. stocks rose for a second day after investor John Paulson’s
hedge fund bought stakes in banks. Germany’s DAX Index climbed
1 percent, with Hannover Rueckversicherung AG and Deutsche Bank AG leading
financial shares higher.
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