Dollar Falls Against Yen and Euro as Global Funds Flow to Japan and Europe
By Mark Tannenbaum
Dollar Falls vs Yen, Euro on Worries Over U.S. Stocks, Bonds
New York, Aug. 31 (Bloomberg) -- The dollar sank to a seven-
month low against the yen and fell versus the euro on concern
weakness in U.S. bonds and stocks could spark investors to shift
funds to Japan and Europe as economic outlooks there brighten.
The yen also rose on confidence it has more room to gain
before the Bank of Japan intervenes and sells the currency to
drive it lower. A strong yen is a worry for Japan as it makes its
exports less competitive and could slow an economic rebound.
``You've got to still think we're headed lower on dollar-
yen,' said Tim Fox, a currency strategist at Standard Chartered
Bank Plc. At this level ``there's no real factor that might turn
it around' and the dollar will likely fall through its current
low of the year, 108.22 yen, he said. A drop below that would
take the dollar to a three-year low.
The dollar fell as low as 109.06 yen, its lowest since Jan.
12. Recently the U.S. currency was at 109.47 yen, from 110.63 yen
late yesterday in New York.
The dollar is down almost 4 percent against the yen this
year, and about 26 percent since peaking at an eight-year high of
147.66 yen about one year ago.
The yen also rose to a record high against the euro of
114.835 yen today, from 116.010 yen late yesterday. The yen was
recently at 115.805 yen per euro.
Traders will push the yen higher ``until (the market) sees
intervention or comments from Japanese officials' suggesting
intervention is coming soon, said Ben Strauss, a trader at Bank
Julius Baer.
The euro rose to $1.0576 from $1.0482, its fourth straight
day of gains versus the dollar, after a report showed French
unemployment fell to a 6 1/2-year low in July. The euro earlier
touched $1.0609, its strongest in six sessions.
The euro also got support from a larger-than-expected gain
in June industrial production in France, the euro region's second
largest economy.
Watching Stocks and Bonds
The dollar sank to its lows for the day against the yen and
euro as U.S. stocks and bonds tumbled.
Stocks followed bonds lower as a manufacturing report
signaled rising inflation and sparked concern the Federal Reserve
will boost interest rates for a third time this year.
Bonds fell for a fourth straight day. Thirty-year Treasuries
shed 9/32, pushing yields up 2 basis points to 6.08 percent. The
Standard & Poor's 500 Index dropped as low as 1306.91, its
weakest in about two weeks. It was recently down 0.25 percent to
1321.
The Fed raised rates twice this year, including a quarter-
point increase last week, to keep inflation in check.
Higher U.S. rates could attract investors to dollar
deposits. Yet it could be bad news for stocks and bonds, reducing
demand for the U.S. currency. Inflation erodes the value of bonds
while the higher rates needed to contain inflation increase
corporate borrowing costs and pull down stocks.
Bank of Japan
Traders betting against the dollar took comfort earlier
after Yoshio Suzuki, deputy chairman of the policy board at
Japan's Liberal Party, said the Bank of Japan would act to stem
the yen's gains if the dollar drops ``rapidly' to 105 yen. The
Liberal Party is part of the government coalition.
Separately, Ichizo Ohara, a legislator and adviser to
Japan's Prime Minister Keizo Obuchi, told Bloomberg News the
country's monetary authorities doubt Japan's sale of yen to halt
its rise will succeed.
``There's a growing view that the Bank of Japan isn't coming
in,' said Lee Ferridge, head of global currency strategy at
Rabobank International in London. ``That, and the natural yen
buying' from international investors plowing money into Japan
means the dollar may fall more against the yen, he said.
Of 10 traders and strategists surveyed by Bloomberg News,
seven said the Bank of Japan won't intervene before the yen
breaks the high it reached in January.
French Reports
The euro's rise today also stems from reports earlier
showing a larger-than-expected gain in France's June industrial
production and an unexpected drop in the jobless rate.
Those reports fanned speculation that the European Central
Bank may raise interest rates before the end of the year.
A rate rise by the ECB would increase the money market
return on euro deposits.
In other trading, the British pound rose to $1.6062, from
$1.5903 in New York yesterday. The dollar also fell against the
Swiss franc, to 1.5134 francs from 1.5278, and rose versus the
Canadian dollar, to 1.4937 from 1.4940.
¸1999 Bloomberg L.P. All rights reserved. Terms of Service, Privacy Policy and Trademarks. |
