06/20 10:03
Dollar Falls to Two-Year Low on Concern U.S. Rebound Flagging
By Mark Tannenbaum
New York, June 20 (Bloomberg) -- The dollar slid to a two- year low against the euro on concern a slowing U.S. rebound is reducing demand for financial assets in the world's biggest economy.
The U.S. currency dropped to 96.18 cents per euro from 95.77 yesterday in New York, and reached its weakest level since June 19, 2000. It slipped to 123.55 yen from 123.84. Those losses were limited by speculation Japan will sell yen to keep the currency from strengthening.
``The U.S. isn't the only choice anymore for investment flows,'' said David Rossmiller, who manages $3 billion as head of global fixed income at Deutsche Bank private banking. Slower economic growth and a swelling current account deficit make the U.S. ``pretty tarnished now.'' The dollar may drop to at least 98 cents per euro by yearend, he said.
Traders dumped dollars after the U.S. government reported the nation's trade deficit ballooned to a record $35.9 billion in April from $32.5 billion in March.
At the same time, the U.S. said its current account shortfall widened to $112.5 billion in the first three months of the year, from a revised $95.1 billion in the prior quarter.
The growing gap in the current account, the broadest measure of international trade and investment flows, can hurt the dollar if the U.S. fails to attract at least as much investment back.
``It underscores the challenges for the U.S.,'' said Robert Millns, head of foreign exchange at HVB Americas, the U.S. arm of Germany's second-biggest bank. ``The world's lost confidence'' in the dollar and the U.S. economy, putting the $1 per euro level ``certainly within reach'' in coming months, he said.
U.S. stocks were little changed in midmorning trading. The Standard & Poor's 500 Index has dropped 11 percent this year, fueling the dollar's 7.8 percent decline against the European currency in the period.
`Fear Phase'
``We are in a fear phase for the dollar -- a lot of that is coming from the U.S. stock market,'' said Dale Thomas, who helps oversee about $15 billion in bonds at Rothschild Asset Management in London. The dollar will ``continue to be under pressure.''
Government and industry reports last week showed retail sales fell more than expected in May and consumer confidence dropped this month.
Fund managers worldwide have less money invested in U.S. stocks than at any time since February 2000 because of concern about earnings and prices, according to a Merrill Lynch & Co. survey released this week.
Overseas investors bought a net $17.6 billion in U.S. stocks in the first quarter, less than half the $41.7 billion in net purchases in the first quarter of 2001, according to the latest Treasury Department figures.
Rather than enthusiasm for the euro, ``it's really people looking for alternatives to the dollar,'' said Greg Gibbs, a currency strategist at Westpac Banking Corp.
Speculation on Yen Sales
Dollar losses against the yen were capped after a Japanese official signaled the country may sell its currency after the yen climbed to levels that triggered sales earlier this month.
``We are closely watching the market so that we can take proper action if needed,'' said Haruhiko Kuroda, vice finance minister for international affairs. Japan sold yen four times in the past 30 days, each time after the currency strengthened beyond 124 yen per dollar.
Japan wants to prevent the yen's recent gains from hurting exporters' overseas profits and prolonging a recession, analysts said. A government report today showed Japan's trade surplus unexpectedly rose in May as exports gained for the fifth month in a row, bolstering expectations the world's second-biggest economy has emerged from recession.
Exports climbed 5.7 percent in May from April, the biggest gain since January. |
