The dollar fell against all 16 of its most-traded counterparts as speculation U.S. lawmakers will reach agreement on the nation’s budget and avert the so-called fiscal cliff damped demand for safety.
The Dollar Index fell from almost a 10-week high after President Barack Obama said he was “confident” that an agreement would be reached to avert the triggering of automatic spending cuts and tax increases at year-end that may push the economy into recession. The Canadian and Australian dollars extended gains against the greenback as the International Monetary Fund said it would classify the currencies as official reserve assets.
“It’s pretty much just market optimism mainly regarding the fiscal-cliff issue,” Sireen Harajli, a foreign-exchange strategist in New York at Credit Agricole SA, said in a telephone interview. “It seems that both parties are showing more willingness to negotiate and find a middle ground. There’s been an improvement in risk aversion, which hurts the dollar.”
The dollar weakened 0.4 percent to $1.2796 per euro as of 10:36 a.m. New York time, after slipping 0.2 percent last week. The yen strengthened 0.1 percent to 81.23 versus the U.S. currency after falling as much as 0.3 percent to 81.59, the weakest level since April 25. The Japanese currency fell 0.3 percent to 103.94 per euro after earlier depreciating to 104.11, the lowest since Oct. 25.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, dropped 0.4 percent to 80.923. It reached 81.455 on Nov. 16, the highest since Sept. 5.
“It’s a slightly softer tone for the dollar to start the week,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. Optimism that U.S. leaders would reach a budget agreement “has provided slight relief for risk.”
The IMF asked member countries to report holdings of the Canadian and Australian dollars along with those of the U.S. dollar, euro, yen, sterling and Swiss franc in their foreign- exchange reserves. The move was first reported by Marketwatch.com.
Canada’s dollar climbed 0.5 percent to 99.67 cents per U.S. dollar. The so-called Aussie added 0.7 percent to $1.0408.
Brazil’s real gained versus most of its major peers after analysts lowered their forecasts for 2013 economic growth, bolstering bets that the country’s central bank will keep borrowing costs low.
The currency appreciated 0.7 percent to 2.0704 per dollar after closing at a five-month low Nov. 16. The real rose as much as 0.7 percent, its biggest increase since Aug. 31.
“I am confident we can get our fiscal situation dealt with,” Obama said at a news conference in Bangkok, where he began a three-nation trip. House Speaker John Boehner said Republicans are willing to put revenue on the table in exchange for spending cuts after Nov. 16 discussions with Obama, which he called “constructive.”
“The U.S. dollar is still the main funding currency of the world,” Hans Redeker, head of foreign-exchange strategy at Morgan Stanley in London, told Maryam Nemazee on Bloomberg Television’s “The Pulse” today. “When you have more information that we can deal with the fiscal cliff, then it is going to work initially against the dollar, especially versus higher-yielding currencies.”
The dollar fell as sales of previously owned U.S. homes climbed in October, indicating gains in the real-estate market are being sustained by cheap borrowing costs.
Japan’s currency dropped against all but one of its major peers after Kyodo News reported Liberal Democratic Party leader Shinzo Abe will choose someone who favors inflation targets as the next Bank of Japan governor. The BOJ will end a two-day policy meeting tomorrow.
The yen last week suffered its biggest decline against the dollar since February as Prime Minister Yoshihiko Noda dissolved the lower house of the parliament, paving the way for elections that polls show his Democratic Party of Japan will lose. Abe indicated he would consider asking the BOJ to directly buy the nation’s construction bonds if he becomes the next prime minister, Kyodo News cited him as saying on Nov. 17.
The Nikkei newspaper reported today that 25 percent of respondents in an opinion poll favor Abe’s LDP in the Dec. 16 election, compared with 16 percent for the ruling DPJ. The Nikkei cited a nationwide survey taken Nov. 16-18.
In a Bloomberg News poll of economists, all 21 economists surveyed expect BOJ Governor Masaaki Shirakawa’s board to take no action at the policy meeting that ends tomorrow. At its last gathering on Oct. 30, the central bank increased asset purchases by 11 trillion yen. Shirakawa is due to step down in April.
Japan’s currency has fallen 6.9 percent this year, the most among the 10 developed currencies measured by Bloomberg Correlation-Weighted Indexes. The euro is the second-worst performer, losing 2.8 percent, while the dollar has declined 1.2 percent.
The dollar may rise to an eight-month high versus the yen after ending last week above a key technical level, according to CMC Markets Plc, citing trading patterns.
“Last week saw the U.S. dollar close above the weekly ichimoku cloud for the first time since April, which should be bullish,” London-based analyst Michael Hewson wrote in an- emailed note today. “The next and key resistance lies at the 81.80 area -- the April 20 high --- a break of which could be the catalyst for a move towards the March highs above 84.”
Ichimoku charts are used to predict a currency’s direction by analyzing the midpoints of historical highs and lows. The conversion line plots the sum of the highest high and lowest low over the last nine trading days. The baseline is the same calculation over the past 26 days.