R MacDonald
10-24-2004, 07:15 PM
Dollar Has Biggest Weekly Drop in Eleven on Trade-Gap Concern
Oct. 23 (Bloomberg) -- The dollar had its biggest weekly drop in 11 against the euro on concern investors are slowing their purchases of U.S. assets and as Federal Reserve officials said a widening trade deficit is a risk for the economy.
Foreigners bought a net $59 billion of Treasuries, stocks, and other securities in August, the least in 10 months, Treasury said Oct. 18. Federal Reserve Bank of San Francisco President Janet Yellen said on Oct. 21 the trade gap poses ``significant issues'' for the economy.
``Concern about the mounting current-account deficit, and the potential inability by the U.S. to finance it, was the main driver behind this week's decline in the dollar,'' said Ram Bhagavatula, chief economist in New York at Royal Bank of Scotland, referring to the broadest measure of trade.
Against the euro, the dollar weakened to $1.2682 late yesterday in New York, the weakest since Feb. 25, according to electronic foreign-exchange trading system EBS. The U.S. currency traded at 107.26 yen, from 107.47, its biggest weekly drop in five months.
The dollar fell 1.7 percent this week against the euro and tumbled 1.9 percent versus the yen. The gap between exports and imports was $54 billion in August, the second biggest on record.
Yellen's remarks ``reflect the unease that the Fed feels in dealing with the ever-widening current-account deficit,'' said Alex Patelis, senior currency strategist at Merrill Lynch & Co. in London. The gap ``is really the driver of this whole move'' in the dollar, he said.
`Question Mark'
``It's a dislike of the dollar,'' said David Durrant, chief currency strategist in New York for Bank Julius Baer & Co., which manages $95 billion. Foreign asset managers ``don't want to own the dollar risk associated with a U.S. asset.''
Lehman Brothers Holdings Inc., the most accurate forecaster of exchange rates in the third quarter, cut its forecast for the dollar yesterday, saying the currency will reach $1.29 per euro by the end of 2004. It previously predicted $1.26.
``In a year when the Fed will have raised rates by 100 basis points, that is not a great outcome for the dollar, and puts a lot of question marks in the trend going into 2005,'' said Jim McCormick, head of Lehman's currency research.
Fed policy makers raised their benchmark interest rate three times since June, to 1.75 percent. They meet again on Nov. 10 and Dec. 14. A basis point equals 0.01 percentage point.
Lehman's foreign-exchange strategy group, which placed first in Bloomberg's third-quarter survey of 50 currency forecasters, expects the dollar to weaken to $1.32 per euro in a year. Lehman also projected the dollar will decline to 105 yen in three months and 99 in 12 months, a level unseen since 1995.
Snow `Not Concerned'
Dollar policy is set by the Treasury Department. Treasury Secretary John Snow said this week he wasn't worried global demand for U.S. assets will diminish. He also said ``we support a strong dollar.'' He made both comments to reporters in Florida.
``The United States continues to be the best place in the world to invest, so I'm not concerned,'' Snow said.
Finance Minister Sadakazu Tanigaki suggested Japan is ready to sell the yen, after its rally yesterday to the strongest since June 25. Japan hasn't sold its currency since March.
``We will take necessary action if the currency is driven by market speculation and fails to reflect fundamentals'' of the economy, Tanigaki said at a press conference after a Cabinet meeting in Tokyo. His comment echoed remarks from Vice Finance Minister Koichi Hosokawa.
Yen Sales
Eisuke Sakakibara, known as ``Mr. Yen'' when directing Japan's currency policy from 1997 to 1999 at the Ministry of Finance, said in an interview that the government may direct the Bank of Japan to sell the yen should it gain to around 100 per dollar, a level he said may be reached as soon as next month.
The dollar may extend its drop on concern about U.S. growth and a record current-account gap, Sakakibara said. The current account, in deficit by $166.2 billion in the second quarter, includes some investment flows.
Japan sold a record 32.9 trillion yen in the fiscal year ended March 31, when the yen rose 13 percent against the dollar.
``Japan has many reasons to fear an acceleration in the yen's rally, as that could put the recovery under threat,'' said Tetsu Aikawa, vice president of derivatives and foreign-exchange marketing in Tokyo at UFJ Bank Ltd.
The dollar's ``relatively high'' value makes imports less expensive and raises the price of goods exported from the U.S., said Yellen, a non-voter on interest rates at the Fed this year. Rising imports require more dollars be converted into foreign currencies.
McTeer's Comments
Fed Bank of Dallas President Robert McTeer said on Oct. 7 a shortfall in the current account will lead to a weaker dollar.
Yellen's comments ``underscore how alarmed she and other Fed officials are by ever-rising deficits,'' said Shimpei Uike, who invests in overseas debt for Asahi Life Asset Management in Tokyo, which manages the equivalent of $10.5 billion. ``They see a weaker dollar as the only immediate solution available.''
The dollar will probably fall below $1.30 per euro ``as it's unlikely to be met by aggressive verbal intervention from the ECB as was the case earlier this year,'' said Patelis at Merrill.
European finance ministers said Oct. 21 that they favor a stronger currency. French Finance Minister Nicolas Sarkozy said ``a strong currency is better when commodity prices are high,'' after a meeting of European ministers in Luxembourg.
The last time the euro headed toward $1.30, in February, European finance ministers, central bankers and prime ministers cautioned that an appreciating currency would damage the economy's recovery from the weakest growth in a decade.
At the time, European Central Bank President Jean-Claude Trichet denounced ``brutal moves'' in foreign-exchange markets.
To contact the reporter on this story:
Vivianne C. Rodrigues in New York at at vrodrigues@bloomberg.net.
To contact the editor responsible for this story:
Daniel Moss at dmoss@bloomberg.net.
Last Updated: October 23, 2004 09:35 EDT
http://quote.bloomberg.com/apps/news?pid=10000087&sid=a9nTrp8Dcv_E&refer=top_world_news#
Oct. 23 (Bloomberg) -- The dollar had its biggest weekly drop in 11 against the euro on concern investors are slowing their purchases of U.S. assets and as Federal Reserve officials said a widening trade deficit is a risk for the economy.
Foreigners bought a net $59 billion of Treasuries, stocks, and other securities in August, the least in 10 months, Treasury said Oct. 18. Federal Reserve Bank of San Francisco President Janet Yellen said on Oct. 21 the trade gap poses ``significant issues'' for the economy.
``Concern about the mounting current-account deficit, and the potential inability by the U.S. to finance it, was the main driver behind this week's decline in the dollar,'' said Ram Bhagavatula, chief economist in New York at Royal Bank of Scotland, referring to the broadest measure of trade.
Against the euro, the dollar weakened to $1.2682 late yesterday in New York, the weakest since Feb. 25, according to electronic foreign-exchange trading system EBS. The U.S. currency traded at 107.26 yen, from 107.47, its biggest weekly drop in five months.
The dollar fell 1.7 percent this week against the euro and tumbled 1.9 percent versus the yen. The gap between exports and imports was $54 billion in August, the second biggest on record.
Yellen's remarks ``reflect the unease that the Fed feels in dealing with the ever-widening current-account deficit,'' said Alex Patelis, senior currency strategist at Merrill Lynch & Co. in London. The gap ``is really the driver of this whole move'' in the dollar, he said.
`Question Mark'
``It's a dislike of the dollar,'' said David Durrant, chief currency strategist in New York for Bank Julius Baer & Co., which manages $95 billion. Foreign asset managers ``don't want to own the dollar risk associated with a U.S. asset.''
Lehman Brothers Holdings Inc., the most accurate forecaster of exchange rates in the third quarter, cut its forecast for the dollar yesterday, saying the currency will reach $1.29 per euro by the end of 2004. It previously predicted $1.26.
``In a year when the Fed will have raised rates by 100 basis points, that is not a great outcome for the dollar, and puts a lot of question marks in the trend going into 2005,'' said Jim McCormick, head of Lehman's currency research.
Fed policy makers raised their benchmark interest rate three times since June, to 1.75 percent. They meet again on Nov. 10 and Dec. 14. A basis point equals 0.01 percentage point.
Lehman's foreign-exchange strategy group, which placed first in Bloomberg's third-quarter survey of 50 currency forecasters, expects the dollar to weaken to $1.32 per euro in a year. Lehman also projected the dollar will decline to 105 yen in three months and 99 in 12 months, a level unseen since 1995.
Snow `Not Concerned'
Dollar policy is set by the Treasury Department. Treasury Secretary John Snow said this week he wasn't worried global demand for U.S. assets will diminish. He also said ``we support a strong dollar.'' He made both comments to reporters in Florida.
``The United States continues to be the best place in the world to invest, so I'm not concerned,'' Snow said.
Finance Minister Sadakazu Tanigaki suggested Japan is ready to sell the yen, after its rally yesterday to the strongest since June 25. Japan hasn't sold its currency since March.
``We will take necessary action if the currency is driven by market speculation and fails to reflect fundamentals'' of the economy, Tanigaki said at a press conference after a Cabinet meeting in Tokyo. His comment echoed remarks from Vice Finance Minister Koichi Hosokawa.
Yen Sales
Eisuke Sakakibara, known as ``Mr. Yen'' when directing Japan's currency policy from 1997 to 1999 at the Ministry of Finance, said in an interview that the government may direct the Bank of Japan to sell the yen should it gain to around 100 per dollar, a level he said may be reached as soon as next month.
The dollar may extend its drop on concern about U.S. growth and a record current-account gap, Sakakibara said. The current account, in deficit by $166.2 billion in the second quarter, includes some investment flows.
Japan sold a record 32.9 trillion yen in the fiscal year ended March 31, when the yen rose 13 percent against the dollar.
``Japan has many reasons to fear an acceleration in the yen's rally, as that could put the recovery under threat,'' said Tetsu Aikawa, vice president of derivatives and foreign-exchange marketing in Tokyo at UFJ Bank Ltd.
The dollar's ``relatively high'' value makes imports less expensive and raises the price of goods exported from the U.S., said Yellen, a non-voter on interest rates at the Fed this year. Rising imports require more dollars be converted into foreign currencies.
McTeer's Comments
Fed Bank of Dallas President Robert McTeer said on Oct. 7 a shortfall in the current account will lead to a weaker dollar.
Yellen's comments ``underscore how alarmed she and other Fed officials are by ever-rising deficits,'' said Shimpei Uike, who invests in overseas debt for Asahi Life Asset Management in Tokyo, which manages the equivalent of $10.5 billion. ``They see a weaker dollar as the only immediate solution available.''
The dollar will probably fall below $1.30 per euro ``as it's unlikely to be met by aggressive verbal intervention from the ECB as was the case earlier this year,'' said Patelis at Merrill.
European finance ministers said Oct. 21 that they favor a stronger currency. French Finance Minister Nicolas Sarkozy said ``a strong currency is better when commodity prices are high,'' after a meeting of European ministers in Luxembourg.
The last time the euro headed toward $1.30, in February, European finance ministers, central bankers and prime ministers cautioned that an appreciating currency would damage the economy's recovery from the weakest growth in a decade.
At the time, European Central Bank President Jean-Claude Trichet denounced ``brutal moves'' in foreign-exchange markets.
To contact the reporter on this story:
Vivianne C. Rodrigues in New York at at vrodrigues@bloomberg.net.
To contact the editor responsible for this story:
Daniel Moss at dmoss@bloomberg.net.
Last Updated: October 23, 2004 09:35 EDT
http://quote.bloomberg.com/apps/news?pid=10000087&sid=a9nTrp8Dcv_E&refer=top_world_news#