Dollar Falls to Four-Year Low vs Euro After Bush Speech on Iraq
By John Beresford-Peirse
London, March 7 (Bloomberg) -- The dollar fell to a four-year low against the euro after President George W. Bush said the U.S. doesn't need United Nations backing to attack Iraq, boosting speculation military action will begin by the end of this month.
The dollar dropped to $1.1025 per euro at midday in London from $1.0993 yesterday. It earlier fell as low as $1.1037, its weakest since March 18, 1999, less than three months after the euro was introduced. The dollar has shed more than 20 percent against the euro in the past 12 months.
Iraqi leader Saddam Hussein has ``systematically and deliberately'' defied UN mandates, Bush said in Washington late yesterday. The U.S. will seek a vote by the UN Security Council authorizing force to disarm Iraq, although it is prepared to act without the UN's support if it loses that vote, he said. A war may hurt the dollar by weighing on U.S. business and consumer confidence, crimping economic growth.
``Until we see some resolution to the problems in Iraq, the dollar will fall,'' said Pradip Gupta, who manages $200 million in bonds at Nomura Asset Management. Nomura holds less dollars than its benchmarks suggest, and prefers higher-yielding currencies such as Australian and Canadian dollars, he said.
The U.S. currency was little changed at 117.21 yen per dollar from 117.22.
UN Chief weapons inspector Hans Blix and Mohamed Elbaradei, director of the International Atomic Energy Agency, will report to the Security Council in a public meeting scheduled to begin at 3 p.m. London time. Foreign ministers from 12 of the 15 council members, including U.S. Secretary of State Colin Powell, probably will attend and discuss the report.
`Inevitability'
An attack without the support of its allies would be the worst scenario for the dollar, because the U.S. would be saddled with most of the costs of a war and its aftermath, analysts say.
Investors have accepted ``the inevitability of war,'' said Kamal Sharma, a currency strategist at Commerzbank AG. The dollar may fall to $1.12 as a ``knee-jerk'' reaction when an attack begins, he said.
On Jan. 17, 1991, the day a U.S.-led coalition launched an air attack on Iraq to start the Gulf War, the dollar had one of its worst days in the past 12 years. It fell 2.9 percent against the yen, more than on all but eight days since, and shed another 4 percent within three weeks. The dollar also shed 2 percent against the German mark that day, and lost another 4.5 percent in the following three weeks.
Against a basket of its main trading partners, the U.S. currency has dropped 16 percent in the past year. It may fall another 10 percent over the next 12 months as the U.S. finds it difficult to attract enough foreign capital to offset its current account deficit, said Nomura's Gupta.
Pound
The British pound weakened to 68.65 pence per euro from 68.55 yesterday. It has dropped more than 5 percent this year partly because the U.K.'s support for a U.S.-led attack against Iraq makes the pound less of a haven investment, analysts said.
The Swiss franc, traditionally seen as a safe investment in times of crisis, strengthened to 1.3291 francs per dollar from 1.3316, extending its gain this year to 4 percent.
Bush's comments suggest ``war is going to happen sooner rather than later,'' said Toru Umemoto, a currency strategist at Morgan Stanley in Tokyo. ``We're going to see further declines in the dollar. The euro could get to $1.12 in the coming weeks.''
The dollar may come under further pressure on expectations a report due at 1:30 p.m. London time will show U.S. unemployment rose in February, analysts said.
The jobless rate probably climbed a 10th of a percentage point to 5.8 percent last month, edging toward an eight-year high of 6 percent reached in December, according to economists polled by Bloomberg News. Forecasters estimate companies added no more than 10,000 workers to payrolls following a 143,000 increase in January, the survey showed.
Japan
Any decline in the dollar against the yen may be limited by concern Japan will sell its currency after a 10 percent gain during the past year. A strengthening yen erodes the profit Japan's exporters earn on overseas sales.
Japan ``is taking into consideration the movements of both the euro and the dollar,'' Finance Minister Masajuro Shiokawa said. His deputy, Zembei Mizoguchi, said Japan ``will take appropriate steps to stem fluctuations.''
The Bank of Japan sold about 1.2 trillion yen ($10.2 billion) in January and February to keep the currency from strengthening.
Japan may look to sell yen again if it strengthens to 116.85 per dollar, said Sharma at Commerzbank. It reached 116.84 on Feb. 27, its strongest since last August.
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