HONG KONG
The dollar fell on Friday as speculation mounted that a US plan that included letting undervalued currencies strengthen would gain support ahead of a contentious weekend Group of 20 meeting. This had the sudden effect of lifting gold and oil prices.
Major European stocks opened lower, with Britain’s FTSE 100 down 0.1 percent, France’s CAC 40 down 0.5 percent and Germany’s DAX off 0.3 percent. The FTS Eurofirst 300 opened 0.1 percent lower.
A positive outlook from LG Display, the world’s No. 2 LCD flat screen maker, spurred a rally in shares in the technology sector and pushed up Asian stocks. However this not prevented a drift towards the first weekly decline in two months.
G20 nations should refrain from currency policies aimed at gaining a competitive edge and aim to keep trade imbalances contained, US Treasury Secretary Timothy Geithner said in a letter to finance chiefs in the group who are meeting in Gyeongju, South Korea.
Canada also voiced its consent. However, developing economies such as China may be hostile to the idea of letting their currencies fly when the Federal Reserve is discussing a new round of quantitative easing.
For financial markets, at stake in the G20 meeting is whether to keep alive what has been a dominant trend since September of selling dollars to buy emerging market equities, commodities and longer maturity bonds. So far on Friday, dealers have been willing to further add to this trade.
Citi’s currency strategists recommended adding to bets against the dollar ahead of the weekend. “We believe that timing is right to bet against the dollar,” they said in a note. “Since we believe that apparent widespread expectation for coordinated action to manage the USD’s decline will not be met, we suspect that disappointment could translate into a further broad based decline in USD.”
The US dollar index, which measures the dollar’s performance against a basket of six other major currencies, reversed early gains and fell 0.2 percent.
Dealers have spent most of the week taking profits on their bets on emerging Asian currencies, particularly after China raised interest rates for the first time since 2007 on Tuesday, sparking fears about the impact on growth. The dollar is up 1.1 percent on the week against the Korean won and 0.9 percent against the Malaysian ringgit.
