While you were sleeping: Dollar slips beyond US$1.50 per euro

Thursday 22nd October 2009

The US dollar sank beyond US$1.50 per euro for the first time in 14 months amid optimism the global economy is picking up pace and speculation the Federal Reserve may lag other central banks in raising interest rates.

The dollar weakened to US$1.5039 per euro, the least since August last year, from US$1.4945 yesterday. The greenback gained to 91 yen from 90.78. The euro traded at 136.87 yen from 135.66.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.8% to 74.98. The Federal Reserve’s Beige Book survey reported most regions of the US had stabilised or improved modestly, with signs of pick-up from the housing market and manufacturing.

Commercial real estate was one of the weakest sectors, the report said. "Reports from the 12 Federal Reserve districts indicated either stabilization or modest improvements in many sectors since the last report, albeit often from depressed levels," the Fed said.

Demand for bank loans was “weak or declining” and there was little price pressure in the economy, the Fed’s report said.

Treasury Secretary Timothy Geithner told Reuters that the bank capital-purchase program in the US$700 billion Troubled Asset Relief Program will be allowed to expire this year.

“We are now at the point where we can begin to wind down the programs that really defined TARP in its initial stages,” Geithner said.

US shares were mixed. Yahoo! Inc. and Morgan Stanley gained after posting earnings that beat estimates. Merck & Co. sank 2.5% to US$32.88 after the US Advisory Committee on Immunization Practices declined to press for the use of the drug maker’s Gardasil vaccine for boys and men, opting instead for "permissive" use by doctors.

The Dow Jones Industrial Average declined 0.7% to 9971.65 and the Standard & Poor’s 500 fell 0.7% to 1083.33. The Nasdaq Composite dropped 0.5% to 2152.71%. Yahoo gained 2.6% to US$17.62 after the second-largest US search engine posted earnings before items of 15 US cents a share, versus forecasts of 13 cents, on sales of US$1.13 billion.

Morgan Stanley jumped 5.4% to US$34.26 after posting third-quarter earnings of US$757 million, or 38 cents a share, exceeding estimates of 30 cents. US Bancorp gained 4.8% to US$24.95 after the lender reported third-quarter earnings rose 4.7%. SanDisk Corp., the world’s biggest manufacturer of flash memory cards, rose 11% to US$23.76 after reporting sales that topped expectations.

Exxon Mobil gained 0.5% to US$73.37 and Chevron Corp. rose 0.01% to US$77.03 after crude oil climbed above US$81 a barrel. Crude oil surged as the dollar weakened and the US Energy Department reported that stockpiles of gasoline fell more than expected.

Inventories of gasoline shrank by 2.21 million barrels last week, twice the expected drop. Crude oil for December delivery rose 2.7% to US$81.29 a barrel on the New York Mercantile Exchange and briefly touched US$82.

Copper gained as the greenback weakened, boosting the appeal of commodities as an alternative investment. Copper futures for December delivery rose 1.2% to $2.9675 a pound on the New York Mercantile Exchange.

Gold futures for December delivery edged up 0.6% to US$1,064.50 an ounce in New York. The British pound rose to a five-week high after Scotland’s Herald newspaper published a column by Bank of England Governor Mervyn King in which he said interest rates will need to rise “at some point.”

The BoE’s Monetary Policy Committee voted 9-0 to keep its key interest rate and 175 billion pound asset-purchase programme unchanged at its meeting on October 8, according to the minutes. The dollar fell to US$1.6627 per pound from US$1.6382 and earlier touched US$1.6635, the least since September 15. Stocks in Europe gained as investors took comfort from Morgan Stanley’s better-than-expected earnings.

The Dow Jones Stoxx 600 gained 0.4% to 249.19. Among national benchmarks, the UK’s FTSE 100 rose 0.3% to 5257.85, Germany’s DAX 30 advanced 0.4% to 5833.49 and France’s CAC 40 rose 0.1% to 3873.22.

Tesco Plc rose 2.3% after Nomura raised its share-price estimate on the prospect of higher profits. Deutsche Bank dropped 2.4% after reporting earnings that missed some estimates. Third-quarter profit more than tripled to 1.4 billion euros, helped by an increase in tax credits. Natixis surged 11% after Credit Suisse listed its price estimate for the stock by 36%.

Businesswire.co.nz

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