Dollar Falls on Bets Investors Seek Higher Yields as G-20 Meets

The dollar dropped against most of its major counterparts on speculation investors betting on a quick recovery in the global economy bought higher-yielding assets as Group of 20 finance ministers convened. The Brazilian real and South African rand posted the biggest advances against the greenback among the most-trade currencies this week as U.S. employers slowed the rate of job cuts in August. Treasury Secretary Timothy Geithner reaffirmed his commitment to supporting the economy before conferring with G-20 officials in London. The U.S. government is scheduled to sell a combined $70 billion in notes and bonds next week. “The policy backdrop is exceedingly supportive,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “All the positive comments from Geithner and the G-20 authorities over the weekend will set us up for a nice bounce in risk.” The dollar fell 0.6 percent to 93.01 yen yesterday, from 93.60 on Aug. 28. The U.S. currency was little changed at $1.4311 per euro. The real climbed 2.2 percent to 1.8401 versus the U.S. currency, and the rand advanced 2.1 percent to 7.5908. U.K. Chancellor of the Exchequer Alistair Darling and German Finance Minister Peer Steinbrueck were among the G-20 officials saying yesterday it’s premature to unwind the emergency measures put in place to fight the crisis. The euro erased its gain versus the dollar on Sept. 3 as European Central Bank President Jean-Claude Trichet said the economic recovery in his region will be “rather uneven” after holding the target lending rate at a record low of 1 percent.

‘Extremely Dovish’

“Trichet sounded extremely dovish,” a team of Commerzbank AG analysts including Ulrich Leuchtmann in Frankfurt said in a report yesterday. The Federal Reserve signaled in minutes of its August meeting published on Sept. 2 that it’s trying to prepare investors for an end to some of its asset purchases as the U.S. economy shows signs it’s beginning to recover from its worst slump since the Great Depression. Geithner told reporters the same day in Washington that it’s still “too early” for G-20 nations to implement exit strategies. Finance ministers meet this weekend in London, while the Bank of England and the Reserve Bank of New Zealand decide on monetary policy next week. Mexico’s peso declined 0.9 percent to 13.3716 against the dollar this week on speculation the government will fail to get congressional support to raise taxes as it seeks to rein in next year’s budget deficit. The peso slumped 3.1 percent last week.

Mexico’s Budget

President Felipe Calderon, who is preparing to send Congress the budget proposals on Sept. 8, said last month that he may seek a combination of debt, higher taxes and lower spending to stem the swelling budget deficit. Standard & Poor’s has warned the nation must create new sources of revenue to offset declining oil income if it’s to avoid a downgrade of its debt rating before the end of the year. S&P rates Mexico’s foreign debt BBB+, the third-lowest investment-grade rating. The euro rose briefly yesterday after the Labor Department reported at 8:30 a.m. in Washington that job cuts slowed to 216,000 in August. The currency approached the lowest level this week about 30 minutes after the report and resumed gaining from about 11:40 a.m. to its intraday high of $1.4327. “There’s too much uncertainty about how this will play out,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “From a recession point of view, we still have a long way to go. Just look at the job losses. It’s not like any recovery we saw since 1980.”

U.S. Jobless Rate

The unemployment rate climbed to a 26-year high of 9.7 percent, and the Labor Department revised its estimate for job cuts in July to 276,000, from 247,000 previously. Canada’s dollarthree-month loans in dollars fell this week, declining for a 13th straight day yesterday to 0.31 percent, according to the British Bankers’ Association. The corresponding rate for funds in yen was higher at 0.38 percent. strengthened 0.4 percent to C$1.0871 per U.S. dollar as the government reported employment rose last month by 27,100, compared with economists’ median forecast of a drop of 15,000. The unemployment rate increased to 8.7 percent. The dollar fell against the rand for a third week in its longest stretch of declines since May. The three-month Johannesburg interbank agreed rate is more that 20 times higher than its U.S. counterpart at 7.1 percent. The London interbank offered rate on

‘New Carry Currency’

“Judging by Libor rates, the dollar’s the new carry currency,” said Jessica Hoversen, a fixed-income and foreign- exchange analyst in Chicago at MF Global Ltd., a brokerage firm. “It’s the cheapest.” In the carry trade, investors borrow in nations where interest rates are low and buy assets where returns are higher, profiting from the difference. The Australian dollar climbed 1.2 percent this week to 85.15 U.S. cents and advanced 0.6 percent to 79.21 yen. The South Pacific nation’s three-month bank-bill swap rate is 3.42 percent. Gains in U.S. Treasuries were limited this week as the government prepared to sell $38 billion of 3-year notes, $20 billion in 10-year securities and $12 billion in 30-year bonds over three straight days beginning Sept. 8. The yield on the 10- year note fell less than 0.01 percentage point to 3.44 percent.