Dollar Falls as Obama Win Paves Way for Monetary Easing…

November 7, 2012 8:37 am  

(Bloomberg) – The dollar weakened on speculation Barack Obama’s re-election as president will boost chances the U.S. will continue monetary stimulus policies that tend to weaken the currency.

The dollar reversed earlier gains versus the euro after Obama defeated Republican challenger Mitt Romney, according to television network projections that show the incumbent winning the electoral votes needed for re-election. The Australian dollar rose for a third day as Asian stocks advanced. Demand for the euro was limited as Greece headed for a vote on austerity measures needed to keep its bailout on track.

The dollar traded at $1.2812 per euro as of 8:18 a.m. in Tokyo from $1.2814 at the close yesterday, when it reached $1.2764, the strongest since Sept. 11.

“Monetary policy will remain loose under Obama so the dollar will be sold,” said Michiyoshi Kato, senior vice president of foreign-currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s third-largest bank by market value. “Dollar selling may not last that long as the U.S. faces the fiscal cliff,” he said, referring to more than $600 billion in tax increases and spending cuts that will be implemented in 2013 unless Congress acts.

The dollar fell 0.5 percent to $1.2872 per euro as of 6:48 a.m. in London, after earlier gaining as much as 0.2 percent. It declined 0.3 percent to 80.08 yen. The euro was at 103.07 yen from 102.97 yesterday, when it touched 102.18, matching the lowest since Oct. 16.

The Australian dollar advanced 0.4 percent to $1.0472. The MSCI Asia Pacific Index (MXAP) of shares climbed 0.7 percent.

Obama was projected the winner in the battleground states of Ohio, Iowa, New Hampshire, Wisconsin, Colorado and Virginia. He also won Pennsylvania, where Romney made a last-minute bid for support to try to derail the president’s path to re- election.

Count Continues

Votes were still being tallied in Florida, with the race too close to call in that battleground.

Romney had said he disagrees with the Federal Reserve measures to stimulate the economy and would replace Chairman Ben S. Bernanke at the end of his term in January 2014.

The central bank unveiled a plan in September to buy $40 billion of mortgage-backed securities every month in a third round of so-called quantitative after $2.3 trillion purchases of bonds from December 2008 and June 2011.

Treasury Notes

The extra yield investors demand to hold two-year Treasuries instead of similar-maturity Japanese notes dropped to 17 basis points, the least since Oct. 16, curbing the allure of the dollar over the yen.

The yield on 10-year U.S. debt, a benchmark for borrowing instruments from mortgages to corporate bonds, has dropped 19 basis points this year. It has tumbled 69 basis points since Obama took office on Jan. 20, 2009.

Treasuries have returned 1.8 percent in 2012 and 15 percent since his inauguration, according to Bank of America Merrill Lynch indexes.

“Obama’s re-election is likely to boost expectations of continued easing by the Fed,” said Junya Tanase, chief currency strategist at JPMorgan Chase & Co. in Tokyo. “If it leads to lower U.S. yields and higher stock prices, the bias will be for the dollar-yen to fall.”

In Greece, the 238 pages of austerity measures, ranging from raising the retirement age two years to 67 to eliminating Christmas and holiday payments for pensioners, will be debated in the 300-seat Parliament from 10 a.m. Athens time with a roll- call vote expected after 8 p.m. today. Approval of the legislation is the first of the parliamentary votes required by Nov. 12 to unlock a 31 billion-euro ($40 billion) portion of international aid.

European Economy

Greek Prime Minister Antonis Samaras must stem defections from his three-party coalition to convince European Union leaders that his government is serious about staying in the euro and implementing reforms. The government has lost as many as four supporters since being formed in June, with the latest defection coming from Socialist Pasok, which provides Samaras with the votes he needs for his majority in Parliament.

Demand for the euro was also hampered before data today that may add to evidence that the region’s debt woes are weakening its core economies.

German industrial production probably fell for a second month in September, decreasing 0.7 percent from the prior month, according to the median estimate of economists in a Bloomberg News survey. A separate report may show euro-area retail sales slid 0.1 percent in September, according to another poll.

Europe’s shared currency declined 1.1 percent over the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar added 0.4 percent and the yen fell 1.6 percent.

“Europe’s problems are far from being resolved,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company. “There is a good chance that we see a sell-off in the euro when they return to the center stage.”

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