Dollar Holds Near 16-Month High Against Yen on Bush Victory
By Mari Murayama and Miki Anzai
Tokyo, Dec. 14 (Bloomberg) -- The dollar held yesterday's gains against the yen and euro on expectations Texas Governor George W. Bush, now the U.S. president-elect, will maintain policies favorable to the U.S. currency, analysts said.
``The Bush administration will keep the strong dollar policy to avoid rapid fund flows out of the U.S. as policymakers try to slow down the economy without making it fall into recession,'' said Tomoyuki Kawakami, deputy general manager for currency trading at Shinsei Bank Ltd.
The dollar traded near a 16-month high at 112.46 yen, little changed from 112.27 yen in late New York trading yesterday. Against the euro, it traded at 87.69, compared with 87.7 in New York.
Bush rival, Democrat Al Gore, conceded the election, giving the presidency to the Republican governor and son of former U.S. President George Bush.
A Bush victory may bolster the dollar against major currencies because the Republican is likely to adopt business- friendly policies and probably won't call for intervention in currency markets, analysts said.
Bush said he would begin working on tax cuts soon after he is sworn in on Jan. 20, along with Social Security reform, education, and drug coverage under Medicare.
Euro
The dollar's gains against the euro are likely to be limited as investors see the economic growth gap between the U.S. and Europe is narrowing, analysts said.
``There will be a marked narrowing in the growth differential'' between the U.S. and euro-region,'' said Audrey Childe-Freeman, an economist at CIBC World Markets. She sees the euro at 96 cents by the second quarter next year.
The euro has declined about 25 percent against the dollar since its January 1999 debut, in part because the U.S. economy has been growing faster than the euro region's.
Signs of a slowing economy in the U.S., including a rise in unemployment and a decline in manufacturing activity, helped the euro rebound from its record low of 82.30 U.S. cents set Oct. 26.
A U.S. report yesterday showed retail sales unexpectedly fell in November, another sign economic growth is slowing.
That may give Federal Reserve policy-makers, who next meet Dec. 19, more reason to adopt a bias toward cutting interest rates to prevent economic growth from winding down too quickly. Lower interest rates may reduce the attractiveness of dollar- based deposits.
The European Central Bank has raised interest rates seven times in 13 months to ward off inflation. Traders said the ECB will probably leave rates on hold for a while after Euro-zone economy grew 0.7 percent in the three months from July to September, down from 0.8 percent in the previous quarter. The bank's governing council will meet to set interest rates today.
Rate Cut?
The yen may extend its decline toward the year end after the Bank of Japan's Tankan survey yesterday added to evidence that Japan's recovery is stalling, said Shinsei Bank's Kawakami.
The survey's main index showed confidence among large manufacturers was unchanged at 10 points in the quarter ending December. That was below the level of plus 12 forecast in a Bloomberg News poll of economists. The survey also showed the index may drop to 7 in March.
``I see no reasons to buy yen aggressively now that the outlook for the Japanese economy is unclear,'' Kawakami said.
The Japanese government will in February formally revise its July to September gross domestic product figures to show the world's No. 2 economy shrank rather than expanded 0.2 percent as reported last week, the Asahi newspaper reported, without citing sources.
The initial GDP report overestimated capital spending, the paper said.
Given these weaker economic indicators, the Bank of Japan may be pressed to cut interest rates just four months after lifting it from near zero in August, economists said.
While bank policymakers are expected to keep rates steady at 0.25 percent when they meet tomorrow, they may face political pressure to trim rates once again if the economy shows more signs of slowing down, or slides back into recession, they said.
``If the economy decelerates next year, the BOJ will be questioned whether its August rate rise was the right decision, and politicians will blame the bank ahead of July's election,'' said Yukari Sato, a senior economist at Nikko Salomon Smith Barney Ltd.
In other trading, the dollar fell to 1.7139 Swiss francs from 1.7148 francs in late New York. The British pound was quoted at $1.4563, up000 from $1.4561 yesterday.
Best Regards, J.T. |
