The dollar fell the most in almost a week against the euro on concern Treasury Secretary Timothy Geithner supported a Chinese plan to blunt demand among global central banks for the greenback.
The U.S. currency pared losses after Geithner clarified his comments on the International Monetary Fund’s special drawing rights and said the dollar will remain the world’s primary reserve currency “for a long period of time.” The yen declined against most major currencies as stocks rallied on U.S. durable- goods and housing reports, reducing demand for safety.
“The dollar’s having a bad week,” said Jessica Hoversen, a foreign-exchange analyst in Chicago at MF Global Ltd., the world’s largest broker of exchange-traded futures and options contracts. “Government policy is only as effective as the government is credible. Having a government official speak out of both sides of his mouth in five minutes erodes credibility.”
The U.S. currency weakened as much as 1.2 percent to $1.3651 per euro, the biggest intraday decline since March 19, before trading at $1.3573 at 1:57 p.m. in New York. The dollar dropped 0.3 percent to 97.57 yen from 97.86. The euro increased 0.5 percent to 132.45 yen from 131.81.
The dollar dropped on Geithner’s comment in response to a question at a Council on Foreign Relations event in New York on People’s Bank of China Governor Zhou Xiaochuan’s proposal regarding the use of special drawing rights, a unit of account at the fund used for member countries’ reserves with the IMF.
The Treasury secretary said that “as I understand his proposal, it’s a proposal designed to increase the use of the IMF’s special drawing rights. And we’re actually quite open to that suggestion.”
Clarifying Remarks
When Geithner was later asked whether he wanted to clarify his remarks, he affirmed the dollar’s role as the world’s reserve currency.
“That was the big concern amongst the confusion,” London- based Lee Hardman at Bank of Tokyo-Mitsubishi Ltd. wrote in a research note today. “A move to an SDR-linked system away from the dollar would naturally lead to a reduction in the dollar’s share of global reserves.”
Zhou said on March 23 in a report posted on the bank’s Web site that special drawing rights, monetary units valued against a composite of currencies, should also be used for international trade, financial transactions and commodity pricing. The IMF should aim in the longer term to create a “super-sovereign reserve currency,” Zhou said.
Weaker Yen
The yen dropped 1.1 percent to 55.72 against the New Zealand dollar and 0.9 percent to 6.88 versus Mexico’s peso as the Standard & Poor’s 500 Index increased 1.2 percent on U.S. economic reports, encouraging speculation that Japanese investors will buy higher-yielding assets overseas.
Orders for U.S. durable goods increased 3.4 percent in February, the biggest gain in more than a year, the Commerce Department reported today. The median forecast of 69 economists surveyed by Bloomberg was for a decrease of 2.5 percent.
Another report from the department indicated new-home sales increased 4.7 percent from a record low pace in January, compared with a 2.9 decrease forecast by economists.
The collapse in demand for Japan’s exports may push manufacturing sentiment to the lowest in 30 years, economists said before the central bank’s Tankan survey due on April 1.
South Korea’s won was the biggest gainer versus the dollar after a finance ministry official said yesterday the government aims to spend 17.7 trillion won ($13.3 billion) by May or June to help the economy recover.
‘Positive Sentiment’
“There’s some positive sentiment that has led to a softening of the U.S. dollar” against the won, said Thio Chin Loo, a senior currency analyst at BNP Paribas SA in Singapore.
The won climbed as much as 2.1 percent to 1,362 per dollar, the strongest level since Jan. 29. South Korea’s economic stimulus plan includes funds for cash handouts, cheap loans, infrastructure and job training, the government said yesterday.
South Korea’s currency is the biggest loser against the dollar this quarter, dropping 7.6 percent on speculation the nation’s economic slump will deepen.
The 16-nation euro gained earlier versus the dollar as a report showed German business confidence this month was in line with the expectations of economists.
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, was 82.1 in March, compared with 82.6 in the previous month. The median forecast of 37 economists surveyed by Bloomberg was for a drop to 82.2. The reading was the worst since November 1982.
“Sentiment data is pretty dire around the world at the moment, and the German Ifo is a prime example of that,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. “However, it more or less matched expectations, and as long as things don’t get worse the euro will benefit.”
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