Bloomberg Dollar Posts Biggest Drop Versus Euro in 2009 on U.S. Deficit

May 30 (Bloomberg) -- The dollar declined beyond $1.41 for the first time in 2009 in the year’s biggest monthly drop after investors dumped dollar-denominated assets as the U.S. budget deficit was projected to quadruple to $1.85 trillion.

The greenback fell against all of its major counterparts in May including the Australian and New Zealand dollars as the yield on the benchmark 10-year Treasury note touched the highest level since November. The pound rose above $1.60 as speculation an economic recovery is starting enhanced the appeal of sterling.

“It’s a fundamental dollar-down trade,” said James McCormick, global head of foreign exchange and local market strategy at Citigroup Inc. in London. “The truth is that countries like the U.S. with handicapped banking systems, with overextended fiscal policy, are going to see very shallow recoveries.”

The dollar weakened 6.3 percent this month to $1.4158 per euro, from $1.3230 on April 30. It was the biggest drop since December’s 9.2 percent decline. The greenback fell 3.3 percent to 95.34 yen from 98.63 at the end of last month. The yen slid 3.3 percent to 134.96 per euro, from 130.52.

Sterling increased 9.1 percent as the Nationwide Building Society said U.K. house prices unexpectedly jumped 1.2 percent in May and the research firm GfK NOP reported that consumer confidence matched the highest level in 11 months.

The pound touched $1.6198 yesterday, the highest level since Nov. 5. Sterling appreciated 20 percent from $1.3503 in January, the lowest level since 1985. more...