dollar news
12/01 17:22
Dollar Drop May Worsen as Investors Snub U.S.:
Currency Outlook
By Geraldine Ryerson-Cruz
New York, Dec. 1 (Bloomberg) -- The dollar's worst week in five years ended
today amid signs the slide may gain momentum. Foreign investors, one of the
currency's chief means of support in recent years, may be starting to turn their
backs on the U.S.
The dollar broke three weeks of gains to fall 3.2 percent against a basket of six
other major currencies tracked by Finex, its biggest one-week drop since May
1995.
Given the speed of the decline, ``momentum is starting to operate against the
dollar now,'' said Tim Moloney, a currency strategist at Deutsche Bank. In a shift
away from patterns earlier this year, ``merger and acquisition activity, which had
been supporting the dollar's gains, will start to dry up,'' he said.
The dollar sank to a four-week low of 114.63 against an index of the euro, yen,
Swiss franc, British pound, Swedish krona and Canadian dollar. Last week, the
dollar closed at 118.48, near a 14- year high.
Against the euro alone, the dollar slumped 4.7 percent this week, its worst
performance ever against the 23-month-old currency. It fell to a two-month low of
87.91 cents per euro from 87.29 yesterday.
Citibank today recommended selling the dollar against the six- currency index,
citing the momentum of its decline and weaker U.S. economic growth.
``Several big indicators are all pointing in the same direction, and that's a strong
technical signal suggesting a major reversal'' is in store for the dollar, said Robert
Sinche, head of global currency strategy at Citibank.
M&A's Slip
One of those indicators is the decreasing appetite the 11- nations in the euro
region are showing for U.S. investments. During the first two months of the fourth
quarter, mergers and acquisitions involving a euro-11 nation acquiring a U.S.
company totaled $12.7 billion, according to Bloomberg statistics. That was down
11 percent from the $14.2 billion in the same period last year. It was $86.7 billion
in the third quarter.
``It looks like a pretty bleak picture, now supported by a slowdown in
announcements of new (merger and acquisition) deals in the first two months of
the fourth quarter,'' said Citibank's Sinche. ``This quarter will be the slowest pace
since the fourth quarter of last year'' for such activity, he said.
The dollar had risen as much as 14.5 percent against the euro this year as
investments including purchases of U.S. firms by European companies drove
funds to the world's biggest economy at the expense of the euro region.
A spate of reports over the past several days took their toll on the currency,
showing U.S. economic growth cooling more than the economies in the 11-nation
euro zone.
Dollar's a `Loser'
``If we go into a hard landing, the U.S. dollar is a loser,'' said Matthew Robertson,
who manages a $660 million global bond portfolio at Neuberger & Berman LLC.
``It's that simple.''
Third-quarter U.S. gross domestic product, reported Wednesday, showed a 2.4
percent annual increase, down from a 5.6 percent rise in the previous quarter.
The German economy, the euro region's largest, grew at a 2.4 percent yearly
rate in the third quarter, outpacing the U.S. for the first time since 1995.
``Growth has converged between Europe and the U.S.,'' helping the euro, said
Marc Chandler at Mellon Financial Corp. ``The (currency) markets are rewarding
growth.''
The National Association of Purchasing Management's manufacturing index
came in at a weaker-than-expected 47.7 for November, its fourth straight month
below the 50 level, which indicates a decline in activity. Other reports this week
showed U.S. consumer spending in October made its smallest gain in six
months, and Midwestern manufacturing slumped in November.
Yen Slides, Too
Meantime, the yen slumped to a 16-month low against the dollar and a 3
1/2-month low against the euro as concerns mounted that Japan's economic
recovery is stalling. It weakened as far as 111.99 per dollar and 97.87 per euro.
Japanese statistics this week showed household spending fell and
unemployment held at a six-month high in October, as industrial production and
housing starts were weaker than expected.
``There is a very unconvincing economic recovery,'' in Japan, said Audrey
Childe-Freeman, an economist at CIBC World Markets in London. ``The yen is
not attractive.''
Japan will probably report Monday that growth in the world's second-largest
economy slowed to 0.2 percent, economists predicted in a Bloomberg News
survey, down from 1 percent in the second quarter and 2.5 percent in the first.
The yen will likely weaken to 113 in coming days, said Jeffrey Yu, a currency
strategist at Sanwa Bank Ltd. Traders are increasingly speculating there will be a
break toward the 115 level in coming weeks, he said. |
