Oct. 23 (Bloomberg) -- The dollar advanced for the first time in six weeks versus the euro as Group of 20 finance ministers debated a U.S. plan to ease foreign-exchange tension by setting targets for current-account imbalances. Brazil’s real was the biggest loser against the dollar, falling this week the most since June after the government raised taxes on foreign inflows to stem the currency’s gain. The euro failed to stay above $1.40 as short-term Treasury yields stabilized before the Nov. 2-3 Federal Reserve meeting. “The market is starting to take back some of that U.S. dollar position,” said Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal. “The market has pushed the euro and yen too high. We expect a lot of talk, but no resolution this weekend.” The dollar gained 0.2 percent to $1.3954 versus the euro, from $1.3977 on Oct. 15. It was the first five-day gain in the greenback versus the common currency since Sept. 10, when it appreciated 1.7 percent. The dollar was little changed at 81.38 yen, compared with 81.45 last week, after touching the 15-year low of 80.85 yen on Oct. 20. The euro dropped 0.3 percent to 113.53 yen, from 113.88. G-20 finance ministers and central bankers convened in Gyeongju, South Korea, yesterday after weeks of wrangling about whether nations from the U.S. to China are relying on weaker exchange rates to spur economic growth. Geithner’s Proposal Participants disagreed about Treasury Secretary Timothy F. Geithner’s suggestion that nations set a target for current- account imbalances. Japan’s Finance Minister Yoshihiko Noda told reporters “that setting numerical targets would be unrealistic,” while his Canadian counterpart, Jim Flaherty, said in a Bloomberg Television interview that the idea was a step in the right direction. “The most likely outcome is a bland statement where authorities agree to refrain from competitive devaluation, promote more foreign-exchange flexibility and shy away from disorderly movements in foreign exchange,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said in an interview with Betty Liu on Bloomberg Television’s “In the Loop” program. “Then probably we will see some knee-jerk dollar selling in Asia. The downward path of the dollar is set in concrete.” Brazil’s real fell 2.4 percent to 1.7057 against the dollar in its biggest five-day decrease since falling 2.6 percent during the five days ended June 4. The real touched a two-year high of 1.6442 on Oct. 14. ‘Currency War’ Amid what Brazilian Finance Minister Guido Mantega has described as a global “currency war,” the government raised taxes on foreign inflows on Oct. 18 for the second time this month. The yen ended the week stronger than 82.88 per dollar, where it traded on Sept. 15, when Japan acknowledged selling the currency to help its export-dependent economy. Mexico’s peso was the only major currency to rise against the dollar this week, appreciating 0.8 percent to 12.3372. The nation’s economy may grow 4.8 percent this year, Finance Minister Ernesto Cordero said this week. The previous forecast had been for a gain of 4.5 percent. The Canadian dollar fell against the U.S. currency for the first time since August, depreciating 1.5 percent to C$1.0259 after reaching parity with the greenback on Oct. 14 for the first time since April. The Bank of Canada kept its 1 percent benchmark interest rate unchanged on Oct. 19 after three previous increases and said the nation’s economy will take an extra year to reach its full potential. Dollar Index The Dollar Index, which IntercontinentalExchange Inc. uses to track the dollar against the currencies of six major U.S. trading partners including the euro, yen, pound and Canadian dollar, gained 0.4 percent to 77.374, from 77.041 on Oct. 15, when it touched 76.114, the lowest level since Dec. 11. The gauge of the greenback has dropped 3.8 percent since Sept. 21, when the Fed said in a statement following its policy meeting that it’s prepared “to provide additional accommodation if needed” to support the recovery. Figures from the Washington-based Commodity Futures Trading Commission showed yesterday that traders increased their bets that the euro will gain against the dollar to almost the highest level since October 2009, indicating that its rally may be poised for a reverse. The only day the euro closed above $1.40 this month was Oct. 14, when U.S. first-time unemployment claims unexpectedly increased and the trade deficit widened. The two-year Treasury yield was little changed at 0.35 percent this week after falling to the record low of 0.33 percent on Oct. 12. “We suspect the dollar’s decline against the euro is reaching its final stages,” wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York in a note to clients. “Various indicators, including sentiment and positioning, warn that the long euro position is a crowded trade.” A long position is a bet an asset will appreciate. To contact the reporter on this story: Allison Bennett in New York at [email protected] To contact the editor responsible for this story: Dave Liedtka at [email protected]
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