Citigroup, Goldman Sachs Clash in Forecast for Dollar's Rise Against Euro
(Bloomberg News)
Wednesday, August 27, 2003
bloomberg.com
Citigroup Inc. predicts the dollar will gain to $1.05 against the euro in three months. That's 13 cents stronger than Goldman Sachs Group Inc.'s forecast.
Citigroup, the world's largest financial services company, today raised its three-month forecast from a previous prediction of $1.10 as the U.S. economy accelerates. Goldman repeated its doubts that economic growth will be enough to keep the dollar from resuming the slide that pushed it to a record low in May.
Goldman's three-month target is $1.18. The views, published in reports today, come as the dollar may advance for a seventh day against the euro. The U.S. currency was at $1.0905 per euro at 1:23 p.m. in New York and traded below $1.08 for the first time since April.
"The dollar has risen faster and more aggressively than we imagined,'' Steven Saywell, a currency strategist at Citigroup in London, said in a telephone interview. "The cyclical economic recovery in the U.S. is very dollar positive.''
Saywell and Robert Sinche, his New York-based colleague, first said in July that the dollar may strengthen to $1.08 in the next six months. At that time, the dollar was at $1.13 per euro.
Currency forecasts matter to companies that have to manage swings in exchange rates. Nokia Oyj, L'Oreal SA and BASF AG are among companies whose earnings or sales were reduced by the dollar's slide in the second quarter. It fell as low as $1.1933 on May 27. The Dow Jones Stoxx 50 Index has advanced about 5 percent since the start of June on optimism the dollar's rebound will boost earnings of companies with business in the U.S.
Turning Point
"We have been surprised by the ferocity and speed of the retracement'' in the dollar, said Matt Cobon, who helps oversee about $70 billion in currencies at Deutsche Asset Management in London. ``We are potentially at a turning point.'' He expects the dollar to resume its decline over the ``medium term.''
Demand for dollars has been spurred by signs economic growth is quickening in the U.S. as Germany, Europe's largest economy, struggles to emerge from recession. In the U.S., durable goods orders rose 1 percent in July, the second consecutive gain, and consumer confidence increased in August.
Citigroup is the second-biggest trader after UBS AG in the $1.2 trillion-a-day global foreign exchange market, according to the latest survey by Euromoney magazine. Goldman is fifth behind Deutsche Bank AG and J.P. Morgan Chase & Co.
Government reports last week showed U.S. housing starts surged to a 17-year high, first-time claims for unemployment insurance declined to the lowest in six months and manufacturing in the Philadelphia area expanded the most in five years.
Capital Flows
"We would acknowledge that that recent cyclical indicators in the U.S. have been impressive,'' wrote Jim O'Neill, head of economic research at Goldman. "However, there is little evidence that the May and June capital inflows can be sustained.''
O'Neill wasn't immediately available for an interview.
Citigroup was the ninth most accurate forecaster of second- quarter exchanges rates, according to a Bloomberg News survey of 52 companies. Goldman declined to participate.
The world's largest economy needs to attract about $1.5 billion a day in foreign investment to offset its current account deficit and protect the value of the dollar. The Standard & Poor's 500 Index has gained 2.8 percent since June. Investors moved $720 million abroad from U.S. equities in the week ended Aug. 22, according to an analysis released today by UBS.
The gap in predictions from two of the top five traders in the foreign-exchange market reflects their differing views on the future pace of growth in the U.S. economy.
Economic Growth
Goldman, the third-biggest securities firm by capital, expects the U.S. to grow 3.4 percent next year and for the Federal Reserve to leave its interest rate at 1 percent. Citigroup sees the U.S. economy expanding at 4.3 percent.
Citigroup reported $390 million in revenue from trading currencies in the second quarter, a 25 percent decline from the previous year's second quarter.
Goldman Sachs, which doesn't report separate amounts for currency trading, said revenue from trading currencies, credit products, interest rate swaps and mortgages, rose across almost all of its lines, growing 39 percent to $1.6 billion in the three- month period ending May 31. |
