Dollar Rises After U.S. Stock Rebound Spurs Talk Slump Is Over
By David Wigan
London, July 29 (Bloomberg) -- The dollar rose to a three- week high against the yen amid expectations rising U.S. stocks will boost demand for the currency needed to buy them.
``We are seeing the dollar rebound out of relief that the equity market seems to be stabilizing,'' said Steven Saywell, a currency strategist at Citigroup Inc. ``We doubt the rally will last against the euro; U.S. interest rates are still relatively very low and corporate bond issuance is dwindling.''
The U.S. currency rose to 119.13 against the yen, the strongest since July 8, compared with 118.89. Against the euro it traded at 98.64 U.S. cents from 98.71. The dollar rose more than 2 percent against the yen and euro last week as some U.S. stocks performed better than their Japanese and European counterparts.
U.S. stock futures climbed, after the Dow Jones Industrial Average added 3.06 percent in the past week, its biggest weekly gain since May. Japan's Nikkei 225 index added 0.8 percent today, paring its decline in the past week to 5.1 percent. The dollar has moved in the same direction as U.S. stocks on nine out of 10 days in the past six months.
The gain in the U.S. currency pared a 9.5 percent decline against the yen this year, as demand for dollar-denominated assets waned. The Standard & Poor's 500 Index fell 25.7 percent, while corporate bond issuance dropped as companies backed away from taking on more debt amid concern over the pace of economic growth. Total dollar-denominated investment grade debt sold in the first half was $279 billion, compared with $318 billion in the same period last year, according to Bloomberg indexes.
GDP and Employment
The extra interest investors demand to buy investment-grade dollar-denominated corporate bonds has risen to 2.18 percentage points over government debt of similar maturities, up from 1.55 at the beginning of June, according to Goldman Sachs indexes. That suggests demand for corporate bonds is also falling.
Interest-rate futures traders pushed the yield on the August federal funds futures contract down half a basis point to 1.695 percent Friday. The yield suggests they see more than a 35 percent chance the Fed will cut its 1.75 percent overnight interbank lending target by a quarter point at next month's policy meeting. The European Central Bank has left its key lending rate at 3.25 percent since November.
The Commerce Department will on Wednesday report on second quarter gross domestic product and Friday on personal incomes and spending. The Labor Department will publish figures for June employment Friday.
The U.S. government will say on Wednesday that the world's biggest economy grew 2.3 percent in the second quarter, down from a 6.1 percent rate in the first, according to a Bloomberg News survey of economists. An index of Chicago manufacturing compiled by the Purchasing Managers Association of Chicago will likely show a decline in activity, economists said.
In other trading, the dollar changed hands at 1.4697 Swiss francs, compared with from 1.4645. Against the British pound, it was at $1.60 from $1.5650. |
