Dollar Reaches 4-Year Low Against Euro as U.S. Appeal Dims
By Mark Tannenbaum
New York, April 29 (Bloomberg) -- The U.S. dollar fell against 16 major currencies, and reached a four-year low against the euro, as traders said they are reluctant to hold the currency because of concern U.S. assets aren't offering sufficient returns to lure foreign investors.
Traders sold dollars as the Standard & Poor's 500 Index of stocks erased most of a 1 percent gain, to end up 0.33 percent, dimming demand for the currency.
``The U.S. dollar will continue to remain under pressure simply because the investment opportunities, whether that's fixed income, equities or foreign direct investment, are not attractive'' enough to lure money to cover the U.S. current account deficit, said Charles Van Vleet, who helps invest $260 billion at Credit Suisse Asset Management.
The dollar weakened as far as $1.1084 per euro, its weakest since Feb. 19, 1999, from $1.0986 yesterday. It traded at $1.1072 at 5:03 p.m. New York time. The dollar fell to 119.74 yen from 120.46, and sank against all of the 14 other major currencies.
The U.S. needs $1.5 billion per day in foreign investment to offset the deficit in its current account, the broadest gauge of international trade. Europe and Japan have current account surpluses.
Van Vleet said he is positioned to benefit from losses in the dollar and gains in the euro.
Stocks' inability to hold their best levels raised the question of whether ``the U.S. is going to be able to attract capital'' to offset its current account deficit, said Greg Salvaggio, a vice president of foreign exchange trading at Tempus Consulting in Washington. ``The dollar just followed suit'' after stocks trimmed gains.
Twin Deficits
U.S. and European reports on consumer and business confidence today suggested the U.S. may be set to outpace its economic rivals, which may lead the current account shortfall to widen further as U.S. demand for imports increases more quickly than foreign demand for U.S. goods.
For the dollar, ``the relative economic strength is less important than the overriding fundamentals of the fiscal and current account deficit,'' said Robert Kowit, who helps manage $1.9 billion of international fixed income securities at Federated Investors Inc.
The combination of the U.S. current account deficit and the budget deficit is a source of concern for some foreign investors, traders said. Goldman, Sachs & Co. economists predict the budget gap could reach $425 billion in the year through September. The larger budget deficit may lead the government to sell more Treasuries, causing prices on the securities to fall.
`Opportunity to Sell'
A report from the Conference Board showed that confidence in the U.S. economy this month jumped the most in 12 years after the fighting in Iraq ended. Consumer purchases account for two-thirds of the economy. In France, the euro zone's second-largest economy, a government report showed business confidence dropped in April.
U.S. stocks first surged on the U.S. report, then weakened and pulled the dollar lower, said traders.
``Any dollar strength should be used as opportunities to sell the currency,'' said David Mozina, head of foreign exchange strategy for the 10 major industrialized nations at Bank of America Corp. He recommends buying currencies of countries that have higher interest rates than the U.S., such as Australia, where benchmark rates are at 4.75 percent. The Federal Reserve's target for overnight lending between banks is 1.25 percent.
The euro has climbed 12.5 percent against the dollar in the past six months also because of the higher yields offered on European fixed-income securities, analysts said.
U.S. 10-year Treasury yields remained under 4 percent, more than 0.2 percentage point below German government debt of comparable maturity.
Investors are buying euros when it cheapens because of ``the fact that you're talking about interest rates higher over there than here,'' said Matt Lifson, chief currency dealer at PNC Bank Corp. in Pittsburgh.
Last Updated: April 29, 2003 17:11 EDT |
