Dollar up most in week as Syria tensions drive flight to safety

Carney Speech

Sterling reversed a decline versus the euro after Bank of England Governor Carney said forward guidance will help the economic recovery in his first policy speech since taking over on July 1. He also said the BOE is focused on sustaining the economic recovery despite the “inevitable shocks ahead.”

The central bank’s Monetary Policy Committee meets on Sept. 5, the same day as the European Central Bank. It has introduced the guidance to prevent a pickup in borrowing costs from undermining the economic recovery.

The pound rose 0.3 percent to 85.89 pence per euro after falling 0.4 percent to 86.52 pence, the weakest since Aug. 7. It dropped 0.2 percent to $1.5521.

Sterling gained 2.1 percent against the greenback this month, the best performance among the major currencies, while the Mexican peso had the biggest loss, at 4 percent. The euro and yen gained 0.2 percent and 0.1 percent.

‘Risk Aversion’

The dollar advanced as a United Nations team was on the ground in Syria gathering evidence to establish use of chemical warfare, Secretary-General Ban Ki Moon said today. Syrian President Bashar al-Assad’s government has denied the employment of chemical weapons.

U.S. officials planning potential military strikes on weren’t limiting themselves to a one-day operation, an administration official said, as the UN Security Council’s permanent members considered a resolution condemning last week’s suspected chemical attack.

“Investors have suddenly ramped up their risk aversion to a very high degree,” Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York, said in a radio interview with Tom Keene on Bloomberg Surveillance. “We favor the U.S., but what the market is looking for is low beta economics, low beta markets.” Beta is a measure of volatility.

Revised figures from the Commerce Department tomorrow will show U.S. gross domestic product grew at a 2.2 percent annualized rate in the second quarter, a Bloomberg survey showed, faster than the initial reading of 1.7 percent.

Federal Reserve policy makers are debating whether the U.S. economy is strong enough to allow them to pare back monthly purchases of $85 billion in Treasuries and mortgage debt. Officials will reduce the amount at their next meeting on Sept. 17-18, according to 65 percent of economists in an Aug. 9-13 Bloomberg survey.

The dollar strengthened 5.1 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed- market currencies. The euro is the best performer, rising 6.3 percent, while the yen slumped 8 percent.

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