Dollar Drops to Six-Month Low as Investors Seek Higher Yields

The dollar fell to the lowest level since March versus the euro and dropped against the yen as signs the global economic recovery will be sustained buoyed investor appetite for higher yields.

The U.S. currency fell against all of its most-traded counterparts as Federal Reserve Bank of New York President William Dudley said more action from the central bank to support the economy is needed. The U.S. currency has declined 1 percent against the yen and 1.8 percent versus the euro this week. U.S. stocks and commodities jumped as consumer spending and incomes rose in August more than forecast.

“The dollar is being sold on an across-the-board basis as investors search for yield,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration. “With the Fed upping the ante by saying they’re keeping the door open for quantitative easing, that is not only introduced an element of additional risk and uncertainty, but likely pushed off the day of reckoning for raising interest rates.”

The dollar declined 0.9 percent to $1.3755 per euro at 10:07 a.m. in New York, from $1.3634 yesterday. It touched $1.3764, the weakest level since March 17. The U.S. currency dropped 0.3 percent to 83.25 yen, from 83.53 yen, after falling to 83.16 yen, the lowest level since Japan intervened in foreign-exchange markets on Sept. 15. The euro advanced 0.5 percent to 114.55 yen, from 113.88 yen.

Weak Dollar

“We now have some of the clearest dollar-weakness trends in place we’ve seen for a while,” said Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc. “The euro is clearly back as the anti-dollar and as you continue to get the news from the Fed that point towards QE2 being imminent, that is feeding dramatically in to euro strength.”

U.S. consumer purchases rose 0.4 percent for a second month, Commerce Department figures showed today in Washington. The gain exceeded the 0.3 percent increase projected by the median forecast of economists surveyed by Bloomberg News. Incomes were up 0.5 percent, the biggest advance this year, propelled by the resumption of extended and emergency unemployment benefits.

Factory Pace

The Institute for Supply Management’s factory index fell to 54.4 in September from 56.3 a month earlier, the Tempe, Arizona- based group said today. Readings greater than 50 signal growth.

Economists forecast the gauge to drop to 54.5, according to the median of 83 projections in a Bloomberg News survey. Estimates ranged from 51.5 to 57.

The Standard & Poor’s 500 Index rose 0.5 percent, building on the best September rally since 1939.

The Reuters/Jefferies CRB Index of raw materials added 0.5 percent as oil rose to a seven-week high after economic data from the U.S. and China bolstered optimism that demand is growing. Crude for November delivery climbed as much as 1.5 percent to $81.40 a barrel, the highest price since Aug. 10.

Asian currencies headed for a fifth weekly advance, the longest winning streak since March, after data showed Chinese manufacturing improved.

China’s purchasing managers’ index rose to 53.8 in September from 51.7 in August, the nation’s logistics federation and statistics bureau said in an e-mail. The median forecast of 15 economists surveyed by Bloomberg News was 52.5, with none forecasting such a large gain. Readings above 50 indicate expansions.