Dollar Falls for Third Day Before Data on German Exports, U.S. Employment

The dollar declined for a third day against the euro before reports forecast to show German exports increased for a second month and U.S. initial jobless claims fell, adding to signs the global economy is improving.

South Korea’s won traded near the highest level in more than two years against the dollar on bets the Bank of Korea will raise interest rates this week after Chinese policy makers boosted borrowing costs yesterday to curb inflation. Australia’s dollar was about 0.9 percent below this year’s high versus the greenback before a report tomorrow forecast to show the nation had its longest stretch of jobs growth since 2007.

“Economies around the world appear to be recovering nicely,” said Yuji Saito, director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. “Sentiment is likely to be ‘risk on’ and the bias is for the dollar and the yen to be sold.”

The dollar fell to $1.3647 per euro as of 1:39 p.m. in Tokyo from $1.3625 in New York. It touched $1.3689 yesterday, the weakest since Feb. 3. The euro bought 112.38 yen from 112.23 yen, after earlier reaching 112.49 yen, the highest since Feb. 3. The Swiss franc was little changed after declining to 0.9655 per dollar, the lowest since Jan. 21. It touched 1.3160 per euro, the weakest since Dec. 3.

Bernanke Testimony

German seasonally adjusted exports rose 1 percent in December from the previous month, the biggest increase since September, according to the median estimate of economists surveyed by Bloomberg News before the data today.

The number of Americans filing first-time claims for jobless benefits fell to 410,000 last week from 415,000 the prior week, another survey showed ahead of the report tomorrow.

Losses in the dollar were limited before U.S. Federal Reserve Chairman Ben S. Bernanke’s testimony today at a hearing of the House Budget Committee.

“Bernanke is likely to emphasize fiscal tightening,” analysts led by Hans-Guenter Redeker, London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a research note yesterday. “While this would normally be negative for a currency, it will prove positive for the dollar in this case, given concerns over sovereign risk.”

U.S. President Barack Obama has increased the nation’s publicly traded debt to a record $8.97 trillion, double the 2007 level, as he boosts spending to sustain the economy’s expansion.

South Korean Finance minister Yoon Jeung Hyun said today that his government needs to act “preemptively” to curb inflation pressures because price gains can weaken the foundation of a stable economy. The Bank of Korea will hold a policy meeting on Feb. 11.

China’s Rate Policy

China’s central bank increased interest rates for the third time since mid-October ahead of a report forecast to show inflation accelerated to the fastest pace in 30 months. The benchmark one-year lending rate will increase to 6.06 percent from 5.81 percent, effective today, the People’s Bank of China said on its website yesterday.

“Some think Bank of Korea may follow China in hiking rates this week,” said Kim Jin Ju, a currency trader at Korea Exchange Bank in Seoul. “U.S. stocks rose yesterday and this is boosting the won.”

The won gained to 1,104.73 per dollar from 1,104.68 yesterday. It reached 1,101.10 on Feb. 3, the strongest since September 2008. The Standard & Poor’s 500 Index advanced 0.4 percent yesterday, climbing for a fourth day.

Australia’s currency bought $1.0139 from $1.0146, nearing this year’s high of $1.0228 set on Jan. 3.

‘Possible’ N.Z. Recession

Employers in Australia added 17,500 jobs in January, an 11th straight month of gains, according to economists surveyed by Bloomberg News before the statistics bureau reports the data tomorrow. The unemployment rate was unchanged at 5 percent, the lowest since January 2009, the survey shows.

New Zealand’s dollar depreciated against all of its 16 major counterparts after Finance Minister Bill English told parliament it was “possible” the nation’s economy slipped into recession in the second half of last year.

“English’s comments continue a tried and tested tradition of kiwi leaders trying to talk the New Zealand dollar down,” said Adrian Foster, Hong Kong-based head of financial-market research for Asia at Rabobank Groep NV.

The so-called kiwi fell 0.4 percent to 77.22 U.S. cents, approaching the lowest level since Jan. 26. English told parliament’s finance and expenditure select committee that the nation’s economic recovery is going to have some challenges.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

`Heavy Lifting' to Come as China Leaves Rate Below Inflation

China’s central bank will likely need to increase interest rates further in coming months as the three moves since mid-October leave household wealth being eroded by accelerating inflation.

The People’s Bank of China yesterday raised the one-year lending rate by a quarter point to 6.06 percent and the one-year deposit rate an equivalent amount to 3 percent. The deposit rate remains almost 2 percentage points less than the pace of consumer-price gains, giving savers an incentive to buy goods and assets.

“There is still a substantial amount of heavy lifting to do in terms of rates -- at this stage of the cycle, the fact that we still have negative real rates is quite alarming,” said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong and a former adviser to Australia’s government.

Premier Wen Jiabao’s government has yet to return rates to pre-crisis levels, seeking to sustain the economy’s rebound to growth of about 10 percent. With overheating a danger in thefirst half of the year, policy makers are likely to raise their benchmarks further, order banks to set aside more cash as reserves and let the yuan appreciate to stem price pressures, Wang Qing, a Morgan Stanley economist in Hong Kong, wrote in a note yesterday.

Yuan Climbs

The yuan climbed 0.2 percent to 6.5827 per dollar as of 10:20 a.m. in Shanghai, the biggest gain since Jan. 14. Interest-rate swaps jumped. The benchmark Shanghai Composite Index of stocks swung between gains and losses.

The central bank moved on the last day of a week-long holiday and before a report next week that may show consumer prices rose 5.3 percent in January, according to the median estimate in a Bloomberg News survey of economists.

That pace is still slower than the most recent inflation rates in Group of 20 nations including Brazil, Russia, India and Argentina, where consumer prices rose 10.9 percent in December from a year earlier.

“A rate rise was expected, but given they delayed to the end of Chinese New Year, it created anxiety over the potential severity,” said Gavin Parry, managing director of Parry International Trading Ltd. in Hong Kong. “Now that uncertainty is removed, the markets can focus on the January trade, and the producer prices and consumer-price data next week.”

Producer Prices

Government figures expected next week are also forecast to show export growth accelerated in January and producer prices advanced at a faster pace, according to Bloomberg surveys.

Shanghai’s stock index has lost 5 percent over the past year, in part on concern at the impact of policy makers’ efforts to defuse a property-market bubble after record lending. The MSCI Asia Pacific Index climbed 22 percent in that time by comparison.

A drought that’s threatening grain output and a New Year surge in lending are adding to inflation risks after money supply jumped more than 50 percent in two years. Economic growth accelerated in the fourth quarter to a 9.8 percent annual pace.

Besides increases in rates and banks’ reserve requirements, Wen’s campaign against inflation spans sales of state-food reserves, subsidies for low-income earners, and crackdowns on speculation and hoarding.

‘Accelerated Tightening’

China’s 0.75 percentage point of increases in one-year rates since the global financial crisis compare with India raising borrowing costs seven times for a total of 1.75 percentage points. In South Korea, where policy makers meet this week to decide on rates, borrowing costs climbed 0.75 percentage point so far.

Isaac Meng, a Beijing-based economist for BNP Paribas, said yesterday that he expected “accelerated tightening,” with rates rising by as much as another 1.5 percentage points. Before the financial crisis, the one-year lending rate was 7.47 percent, 1.41 percentage points higher than the level taking effect today.

In yesterday’s move, the central bank raised long-term rates for deposits by more than for loans. For savers, the increase was as much as 45 basis points, for five-year deposits.

McDonald’s, Starbucks

“The goal is to encourage savers to keep their money in bank deposits rather than shifting to equities or property,” said Mark Williams, a London-based economist at Capital Economics Ltd.

Companies from Baoshan Iron & Steel Co. to Starbucks Corp. and McDonald’s Corp. have raised prices. While wages are also climbing, Chinese consumers are more concerned about inflation than at any time in the past decade, according to a central bank survey released in December.

China’s government aims to hold inflation at 4 percent this year, state broadcaster CCTV reported in December. Officials also want to limit the risk of property bubbles in an economy awash with cash.

China’s foreign-exchange reserves, the world’s biggest, climbed by a record $199 billion in the fourth quarter to $2.85 trillion, and banks extended 7.95 trillion yuan ($1.2 trillion) of new loans last year, exceeding the government’s targeted maximum of 7.5 trillion yuan.

‘Ugly’ Number

New lending may have surged to 1.2 trillion yuan in January, according to the median estimate in a Bloomberg News survey of analysts. In December, the amount was only 481 billion yuan, a difference that highlights a pattern of banks lending more at the start of each year.

The government knows January’s inflation number will “look ugly” and wants to be seen as acting in the lead-up to the annual meeting of the National People’s Congress, the country’s lawmaking body, in early March, said Ma Jun, Deutsche Bank AG’s chief China economist.

Inflation is largely being driven by food costs. Last month, a jump in consumer spending ahead of the Lunar New Year holiday and bad weather that damaged crops may have contributed to a higher inflation reading.

Drought hitting parts of the country may cut grain output and undermine efforts to stabilize prices, Premier Wen said in comments reported by the state-run Xinhua News Agency last week.

--Li Yanping, Shamim Adam, with assistance from Darren Boey, Michael Munoz and Jay Wang. Editors: Paul Panckhurst, Josh Fellman.

To contact the Bloomberg News staff on this story: Li Yanping in Beijing at yli16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net