Dollar Collapse as Trade Deficit Hits Record
Dollar Declines on Expectations U.S. Trade Deficit Near Record
July 12 (Bloomberg) -- The dollar dropped to the weakest this month against the euro on expectations a government report tomorrow will show the U.S. trade deficit held near a record.
The U.S. currency has retreated 1.9 percent against its European counterpart since reaching a 14-month high on July 5. A rising deficit means more dollars are leaving the country to pay for imports. The dollar also weakened against the yen after Japan's Nikkei 225 Stock Average rose to a three-month high.
''The deficit will be significant,'' said Callum Henderson, head of global currency strategy in Singapore at Standard Chartered Plc. At the same time, ''stock inflows are undoubtedly helping the yen. It makes sense for the dollar to weaken.''
Against the euro, the dollar fell to $1.2115 at 11:21 a.m. in Tokyo, from $1.2073 late yesterday in New York, according to electronic currency trading system EBS. Against the yen, it declined to 111.55, from 111.81. The U.S. currency traded as low as $1.2117 per euro, its weakest since June 30, and may fall to $1.22 this week, Henderson said.
The euro may extend its six-day advance against the dollar to at least $1.2220, according to Tom Fitzpatrick, head of a currency research group at Citigroup Inc. that uses trading patterns to predict price moves.
The European common currency may reach that level after strengthening beyond $1.2045, where a so-called double-bottom pattern had formed, New York-based Fitzpatrick wrote in a research report to clients yesterday.
The U.S. deficit held at $57 billion from April, based on the median forecast of 69 economists surveyed by Bloomberg News. The gap was a record $60.1 billion in February.
'Favor the Yen'
Overseas investors have been net buyers of Japan's stocks for four of the past five weeks as the world's second-biggest economy emerges from last year's recession.
The yen is up 1 percent against the dollar since reaching a 13-month low July 8. The Nikkei 225 rose as much as 0.5 percent to the highest since April 11, paced by technology companies such as Sony Corp.
''Gains in the Nikkei favor the yen,'' said Hidehiko Inamura, director of foreign exchange in Tokyo at Citigroup Inc. The yen may rise to 110.50 this week, he said.
The yen's advance may quicken should it strengthen to 111.40, where automatic orders to buy the Japanese currency have been placed, according to Tsutomu Soma, a currency and derivatives trader in Tokyo at Okasan Securities Co. Traders typically place instructions to sell or buy a currency to limit losses in the event their bets go the wrong way.
Fed Rates
Weakness in the dollar may be limited after Federal Reserve Bank of Richmond President Jeffrey Lacker yesterday said it is too early for the Fed to stop raising interest rates. U.S. economic growth appears ''fairly solid,'' Lacker told reporters after a speech in Richmond.
The dollar is up 12 percent this year against the euro as the Fed has lifted its target rate nine straight times to 3.25 percent, while the European Central Bank has kept its comparable target at 2 percent for more than two years.
''The U.S. economy is strengthening and the Fed will continue to lift rates,'' said Ashley Davies, a currency strategist in Singapore at UBS AG. ''It's difficult to find a reason for the euro to strengthen. The risks are for the dollar to rise.''
The euro also drew support after the central bank governor of the United Arab Emirates, the fourth-largest oil producer in the Middle East, yesterday said it may diversify its reserves from U.S. dollars and buy euros for the first time.
The Emirates, a member of the Organization of Petroleum Exporting Countries, may switch as much as 5 percent of its holdings from dollars to euros, Sultan bin Nasser al-Suwaidi said in an interview. The country has reserves equivalent to $19.1 billion.
''The euro has declined a lot and it is tempting to buy,'' al-Suwaidi said. |
