The dollar posted new 18-month high against the euro after
yesterday U.S. Federal Reserve Chairman Ben S. Bernanke called for
further government stimulus measures to avert a prolonged recession.
The
greenback was also close to its strongest in a week versus the yen
after the White House said it may back such measures, having previously
withheld support for additions to a $168 billion package approved in
February. The Australian dollar declined after the central bank said it
saw a ``strong economic case'' for its Oct. 7 interest-rate reduction,
fueling speculation it may cut borrowing costs further.
``An additional stimulus package will support the dollar,'' said
Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in
Tokyo. ``This show that U.S. officials are prepared to go far to limit
damage to the economy.''
U.S. Lawmakers should consider ``measures to help improve access to
credit by consumers, homebuyers, businesses and other borrowers,''
Bernanke said in testimony to the House Budget Committee yesterday.
White House Press Secretary Dana Perino said officials are ``open'' to
the idea of a new plan.
Traders
expect the European Central Bank to lower borrowing costs further after
cutting the main refinancing rate by half a percentage point to 3.75
percent on Oct. 8 as part of coordinated reductions by major central
banks.
The implied yield on the three-month Euribor contract
expiring in March fell to 3.41 percent yesterday, the lowest level in
seven months. The yield has been 0.23 percentage point higher than the
benchmark rate on average over the past year.
``Concerns over a European economic downturn are intensifying,'' said
Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank AG in
Tokyo. ``An ECB rate cut is possible. The euro is becoming a very weak
currency.''
The yen climbed to a three-year high against the euro and gained versus the dollar
on bets central banks will lower borrowing costs to limit the global
economic slump, encouraging investors to sell higher-yielding assets.
Canada's dollar dropped to the lowest against the greenback since
August 2005 as the central bank cut its main lending rate. Australia's
currency fell as policy makers signaled they may cut borrowing costs
further. The dollar rose to a 19-month high against the euro on bets
the European Central Bank will reduce interest rates at a faster pace
than the Federal Reserve.
``The element of risk aversion helps the dollar and the yen, which has
been the trend for a while,'' said Paresh Upadhyaya, who helps manage
$50 billion in currency assets as a senior vice president at Putnam
Investments LLC in Boston. ``The convergence of interest rates will
overtake the risk aversion element to become the most important support
for the dollar going forward.''
``It's probably lending support to the dollar as investors pull their
money out of emerging-market countries,'' said Richard Franulovich, a
senior currency strategist at Westpac Banking Corp. in New York.
Canada's currency dropped as much as 2.5 percent to C$1.2208 per U.S.
dollar after the Bank of Canada reduced its benchmark interest rate by
a quarter-percentage point to 2.25 percent. Policy makers said in a
statement that ``some further monetary stimulus will likely be
required.''
The Australian dollar fell 2.6 percent to 68.63 U.S. cents as
minutes of the Reserve Bank's Oct. 7 meeting showed policy makers said
inflation will slow at a faster rate than previously expected as the
economy slows, fueling expectations for another cut. They lowered the
rate at this month's meeting by 1 percentage point, the most since
1992, to 6 percent.
Investors bet the ECB will lower borrowing costs by another 0.75
percentage point by June after cutting the main refinancing rate by a
half-percentage point to 3.75 percent on Oct. 8, part of coordinated
reductions by major central banks.
``The economic fallout of the crisis will lead to more aggressive
policy actions in major countries,'' said Tom Fitzpatrick, global head
of currency strategy at Citigroup Global Markets Inc. in New York.
``The yen and the dollar will be the beneficiaries.''
The ICE futures Exchange's Dollar Index, which tracks the greenback
versus the currencies of six major U.S. trading partners, touched 83.70
today, the strongest since March 14.
The calendar is likely to be dominated by the minutes of the latest Bank of England MPC meeting, which are due at 0830 GMT.
US data is limited for Wednesday, starting at 1100GMT with the weekly
MBA Mortgage Application Index and followed at 1400GMT by BLS Mass
Layoffs and at 1435GMT by the weekly Crude Oil Stocks data.