Dollar Falls After Russia's Central Bank Raises Euro Holdings
bloomberg.com
Aug. 2 (Bloomberg) -- The dollar fell against the euro and the yen for a second day in Europe after Russia's central bank said it would cut dollar holdings in its currency basket.
Russia raised the share of Europe's single currency to 35 percent from 30 percent, reducing the dollar portion to 65 percent from 70 percent, the central bank said in a statement yesterday on its Web site. China last month ended its fixed exchange rate to the dollar and valued the yuan against a basket of currencies, spurring speculation it will increase holdings of euros and yen in its foreign-exchange reserves.
``Recent moves by central banks in Asia and elsewhere have led to dollar selling and euro buying,'' said Takehiko Jimbo, a foreign-exchange manager in Tokyo at Mitsubishi Trust & Banking Co. ``These moves are beginning to cap the dollar's gains.''
The U.S. currency fell to 111.79 yen as of 6:35 a.m. in London, from 112.25 late yesterday in New York, according to electronic foreign-exchange dealing system EBS. The dollar traded at $1.2223 per euro, from $1.2179. The euro may rise to $1.2280 today, Jimbo said.
The Russian central bank's basket of currencies against the ruble is part of an effort to make its long-term exchange-rate target consistent with its daily trading, it said.
Exchange-Rate `Volatility'
``The gradual increase'' of euro holdings ``is aimed at the further smoothing of intraday volatility of the ruble's exchange rate to the dollar and other foreign currencies significant,'' the central bank said.
``This is apparently supportive for the euro,'' said Minoru Shioiri, senior manager of the treasury and foreign exchange division in Tokyo at Mitsubishi Securities Co. The euro may rise to $1.2220 today, he said.
The Bank of Korea's Oh Jae Kwon today said the central bank was watching the won's rising value against the yen, suggesting it may sell its currency and buy yen. The dollar on Feb. 22 dropped 1.5 percent against the yen and the euro after the Bank of Korea said it will diversify its reserves, suggesting it would sell U.S. dollar holdings.
The yen gained against the dollar on speculation investors abroad will increase purchases of stocks after reports showed the economic recovery is strengthening and benchmark stock indexes rose to the highest in more than a year.
`Attractive Currency'
Overseas purchases of Japanese equities may revive demand for the yen, which has dropped 8.2 percent this year. The latest government report on July 28 showed foreigners were net buyers of Japanese stocks for a sixth week. Finance Minister Sadakazu Tanigaki said today that recent economic indicators show the economy is recovering steadily.
``We are quite optimistic about Japanese stocks,'' said Philip Wee, a market strategist in Singapore at DBS Group Holdings Ltd. ``The yen is still an attractive currency.''
Foreign investors were net purchasers of Japanese stocks for a sixth straight week in the five days to July 22, according to Ministry of Finance data. They bought a net 1.51 trillion yen ($13.5 billion) in the period.
The Nikkei rose to 11,982.20, the most since July 1, 2004, and the Topix index yesterday closed at 1,211.61, the highest since April 2004.
The yen's gain may accelerate when it rises to 111.30 per dollar, where automatic orders to buy the Japanese currency have been placed, according to Tsutomu Soma, a currency and derivatives trader in Tokyo at Okasan Securities Co.
Orders to Sell
Some ``small'' orders to sell the yen were triggered at 111.70, he said. Traders typically place pre-set orders to buy or sell a currency to limit losses in the event their bets go the wrong way.
``The economy is certainly getting better gradually,'' Tanigaki said at a regular press conference in Tokyo, after government reports yesterday showed wages had their biggest increase in seven months in June and that land prices in Tokyo climbed for the first year in 13.
The yen's gain may be limited because of concern the upper house of Parliament will reject a bill to sell Japan's postal system, which is a priority for Prime Minister Junichiro Koizumi's government. Koizumi has said he will call a general election should the bill fail.
``There is a possibility the bill will be rejected, making it hard to buy the yen,'' said Tomoko Fujii, a currency strategist in Tokyo at Bank of America Corp. ``If the bill is rejected, the yen may test this year's low of 113.73. Until we see the results, the yen may struggle to draw support from good data or news out of Japan.''
Put to a Vote
Shizuka Kamei, a senior lawmaker in the Liberal Democratic party, on July 31 said he may try to force Koizumi to quit as a party leader if the premier attempts to call a general election.
The bill will be put to a vote by the time the upper house adjourns Aug. 13, and the LDP leadership is seeking to hold the vote on Aug. 5.
``Any type of political risk like this is going to be negative for the local currency,'' said Michael Woolfolk, a senior currency strategist in New York at the Bank of New York. The yen may end the week at 112.20 against the dollar, Woolfolk said. |
