AUGUST 11, 2010, 9:50 A.M. ET.
Dollar Hits 15-Year Low Against Yen
By FRANCES MCINNIS
NEW YORK—The dollar fell to a 15-year low against the yen Wednesday after U.S. Treasury yields declined in the wake of measures announced by the Federal Reserve to keep its portfolio of securities from shrinking.
The dollar dropped as far as 84.72 yen, its lowest level since July 1995, hit hard by the Fed's announcement of lower economic-growth forecasts and its decision to reinvest some proceeds of maturing mortgages.
But elsewhere the greenback was mostly higher as investors shunned risk and European equities declined. The euro fell to an intraday low in New York below $1.2950, extending losses suffered in Asian and European trading as concerns about global growth sent investors into the perceived safety of the dollar and yen. The move away from higher-yielding currencies also sent the Australian and New Zealand dollars tumbling.
Wednesday morning, the euro was at $1.2956 from $1.3089 late Tuesday, according to EBS via CQG. The dollar was at 84.93 yen from 85.35 86 yen, while the euro was at 110.21 yen from 112.37 yen. The pound was at $1.5700 from $1.5740. The dollar was at 1.0529 Swiss francs from 1.0586 francs. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 81.821, an intraday high and up about 1.3% from 80.762.
The exchange rate between the dollar and yen is sensitive to comparative interest-rate expectations for the U.S. and Japan. With U.S. two-year Treasury yields at record lows following the announcement from the Federal Open Market Committee, currency investors have little incentive to buy the dollar when the yen is perceived to offer more safety.
Fears about the global recovery fueled by soft data out of China sent investors to traditional safe harbors Wednesday. China's July retail sales and industrial-production data pointed to continued growth in the country, but fell short of expectations.
"Since Friday's disappointing [U.S.] employment report, but driven home over the past 24 hours, investors have become more concerned about the trajectory of the world economy," wrote analysts at Brown Brothers Harriman in a research note.
Sterling stumbled after the Bank of England cut its forecasts for U.K. economic growth and long-term inflation in its quarterly Inflation Report, falling below $1.57 against the dollar for the first time in August.
The Canadian dollar gave back its post-FOMC gains and hit a 19-day low against the U.S. dollar early Wednesday as investors reconsidered the Federal Reserve's announcement.
The U.S. dollar was at C$1.0419 Wednesday morning, from C$1.0376 late Tuesday.
The Canadian dollar edged lower after Canada's worse-than-expected merchandise trade balance data for June, which showed a trade deficit of C$1.13 billion. The market was calling for a deficit of C$300 million.
Traders said the U.S. dollar's push through the C$1.0400 level was largely triggered by stop-loss orders.
"The Canadian numbers didn't necessarily have a game-breaking feel to them, largely because we are insensitive overall to the trade numbers. We look to the broader market theme, and the broader market theme is one of caution," said David Watt, senior currency strategist at RBC Capital Markets in Toronto. That theme, he said, has been playing out in Canada for the past several weeks.
The expansion of the U.S. trade gap in June didn't rile the greenback, as investors are accustomed to huge U.S. trade shortfalls. The U.S. trade deficit widened unexpectedly to a record 21-month high in June, as imports from its largest trading partners ballooned. The shortfall in international trade of goods and services surged 19% to $49.9 billion, the Commerce Dept said. The deficit in May was revised down to $41.98 billion from an initial estimate of $42.27 billion. Economists surveyed by Dow Jones Newswires had expected the deficit to expand to $42.7 billion in June.
However, the U.S. trade gap with China expanded to $26.15 billion in June, the widest level since October 2008 and a 17% expansion on the previous month's bilateral deficit of $22.28 billion. Earlier this week, China's trade surplus ballooned far above market expectations, hitting $28.7 billion as exports grew faster than imports. The figures are likely to continue to give ammunition to federal lawmakers pressuring the Obama administration to take China to task on its currency policy. Although China earlier this year announced a move to a more flexible exchange rate, lawmakers say the yuan is still artificially low, undermining U.S. competitiveness.