Dollar Drops to 2009 Low, Sterling Advances as U.K. Banks Rally

London - The dollar declined to the lowest level this year against the currencies of six U.S. major trading partners as evidence of recovery in banking and manufacturing reduced demand for the greenback as a haven.

Sterling jumped to the highest level since October versus the dollar as HSBC Holdings Plc reported an unexpected first- half profit and a survey showed U.K. factories expanded last month for the first time in more than a year. The Canadian dollar appreciated to a 10-month high after crude oil climbed above $71 a barrel.

“We are seeing an extension of weakness in the dollar,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “We had some encouraging news in some financial firms. We see the general improvement in the global manufacturing sector.”

The dollar declined 0.5 percent to $1.4321 versus the euro at 9:10 a.m. in New York, from $1.4257 on July 31. The yen dropped 0.7 percent to 135.91 against the euro from 134.99. Japan’s currency depreciated 0.3 percent to 94.93 against the dollar from 94.68.

The Dollar Index, which the ICE uses to track the U.S. currency against the euro, yen, pound, Swedish krona, Canadian dollar and Swiss franc, dropped as much as 0.5 percent to 77.928, the lowest level since Dec. 18.

Economic growth may resume at a rate faster than most economists foresee, former Federal Reserve Chairman Alan Greenspan said in an interview yesterday on ABC’s “This Week” program. The U.S. economy contracted at a lower-than-forecast 1 percent annual pace in the second quarter, the Commerce Department reported July 31.

Stronger Pound

The pound gained as much as 1 percent to $1.6879, the highest level since Oct. 21, after HSBC, Europe’s biggest bank, rallied in London after posting first-half net income of $3.35 billion. The bank had been expected to report a $600 million loss, according to the median estimate of seven analysts surveyed by Bloomberg.

Barclays Plc jumped to a 10-month high after saying earnings at its investment bank increased to 1.05 billion pounds ($1.8 billion).

A gauge based on a survey of U.K. factories climbed to 50.8, the highest level since March 2008, from a revised 47.4 in June, the Chartered Institute of Purchasing and Supply and Markit said today in London. The median forecast of 25 economists surveyed by Bloomberg News was for a reading of 47.8.

“There are signs that the economy is stabilizing, and the market is right to feel reassured,” said Jane Foley, research director in London at Forex.com, an online currency trader.

Commodity Currencies

The Norwegian krone and Canadian dollar, currencies sensitive to raw-material prices, advanced as crude oil traded above $71 a barrel for the first time in a month.

Canada’s currency appreciated as much as 1.1 percent to C$1.0656 per U.S. dollar, the strongest level since Oct. 2. The krone reached 6.0566, the strongest since Oct. 6. Commodities, such as oil and gold, account for more than half of Canada’s exports. Norway is the world’s fifth-largest oil producer.

Nouriel Roubini, the New York University economist who predicted the financial crisis, told a mining conference in Australia that commodities may extend their rally in 2010 as the global recession abates.

The yen fell against all its 16 most-traded counterparts on speculation signs of a global economic recovery will encourage Japanese investors to buy higher-yielding assets overseas. The currency dropped 1.3 percent to 51.43 versus the Brazilian real and slid 1.1 percent to 6.37 against the krone. Japan’s target lending rate of 0.1 percent compares with 8.75 percent in Brazil and 1.25 percent in Norway.

Chinese Factories

A gauge of manufacturing in China rose in July to a seasonally adjusted 52.8, the highest level in a year, from 51.8 in June, CLSA Asia-Pacific Markets said.

U.S. manufacturing shrank in July at the slowest pace in almost year, a report from the Institute for Supply Management is forecast to show today.

Futures traders trimmed bets last week that the euro would gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed. Futures are agreements to buy or sell assets at a set price and date. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange as of July 28.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 20,287 on July 28, compared with net longs of 34,772 a week earlier.

Mexico’s Peso

Foreign-exchange traders are losing faith that Mexican President Felipe Calderon will push through the tax increases needed to rein in the budget deficit and stem a rout that has made the peso the worst-performing major currency against the dollar in the past year.

Options traders are more bearish on the peso over the next six months than 12 of the other 16 most-traded currencies against the U.S. dollar tracked by Bloomberg, according to derivatives known as risk-reversals. Morgan Stanley strategists say Mexico’s economy is headed for “unsustainable” deficits as oil output declines, while RBC Capital Markets advises investors to sell the currency.

The peso advanced 0.6 percent to 13.1075 versus the dollar today after losing 24 percent in the past 12 months.