U.S. Dollar Poised to Gain as Economy Rebounds, Survey Shows
Oct. 20 (Bloomberg) -- The dollar is poised to rise against the euro for a second straight week as gains in manufacturing, consumer confidence and the labor market add to evidence that the U.S. economy may be accelerating.
Sixty-five percent of the 42 strategists, traders and investors from Tokyo to New York surveyed on Friday recommended buying or holding the dollar against the euro, compared with 21 percent the week before. Sixty-two percent said they'd buy or hold dollars against the yen, up from 12 percent in the previous week.
``From industrial production to consumer confidence, the economy is gaining traction,'' said Robert Sinche, chief currency strategist at Citigroup Inc., the second-largest trader in the $1.2 trillion-a-day currency market, according to Euromoney magazine. ``The appetite for the dollar is increasing. We are recommending clients to buy it against almost everything else.''
The U.S. currency rose against the euro last week for the first time in eight, strengthening to $1.1679 at 5 p.m. on Friday in New York, from $1.1798 a week earlier. It gained for the first time in five weeks versus Japan's currency, to 109.38 yen from 108.66. Sinche, a survey participant, said the dollar may rebound to as high as $1.1525 per euro in coming weeks.
Demand rose last week as reports on regional manufacturing by the Federal Reserve Banks of Philadelphia and New York rose more than economists forecast, according to surveys by Bloomberg News. On Thursday, the Labor Department said the number of new applications for unemployment benefits fell to the lowest in eight months, and on Friday a University of Michigan index showed a rebound in consumer confidence this month.
Closing Positions
Lehman Brothers Holdings Inc. on Friday raised its estimate of third-quarter U.S. economic growth to 6 percent from 5 percent, and recommended paring bets that would profit if the euro rose against the dollar. Also Friday, Merrill Lynch & Co. advised clients to close trading positions that would benefit if the dollar fell against the euro, yen and Canadian dollar.
Investor optimism that many U.S. companies will beat analysts' forecasts for third-quarter profits is helping to support demand from international investors for stocks and the currency to buy them, Sinche said. Of the companies in the Standard & Poor's 500 Index that have reported results, about 65 percent have exceeded estimates, according to Citigroup.
``There's a renewed interest in U.S. companies, with more investors willing to buy their stocks and bonds,'' he said.
The S&P 500 reached its highest level in 17 months last week, while the extra yield demand to own investment-grade corporate bonds rather than U.S. Treasury notes is at the lowest since 1999. S&P 500 members likely boosted earnings by 16 percent in the third quarter, according to Thomson Financial.
Yen Support
Gains in stocks have also been fueling demand for the yen, analysts said. The benchmark Nikkei 225 Index rose 2.3 percent last week, and it's up 28.6 percent this year. Sixteen analysts and managers in the survey recommended investors buy the yen against the 12-nation European currency.
``The Japan equity market story is still very attractive,'' said Michael Preiss, chief investment strategist in Hong Kong at CFC Securities Ltd., a unit of Switzerland-based CFC Group.
Preiss, who participated in the survey, is recommending clients to buy the Japanese currency against the euro.
A Merrill Lynch survey released Tuesday showed the yen is the most likely to rise of the three biggest currencies in coming weeks. Of the 307 fund managers controlling $918 billion surveyed by Merrill between Oct. 2 and Oct. 9, about 38 percent said the yen was more likely to rise than the dollar or euro.
`Market-Determined'
The dollar fell Friday as President George W. Bush appealed for market-determined exchange rates during talks Friday in Tokyo with Japanese Prime Minister Junichiro Koizumi, an administration official said. Bush is in Asia for a six-day trip to participate in the Asia-Pacific Economic Cooperation summit.
Investors have pushed the dollar down 1.9 percent against the euro and 3.7 percent versus the yen since finance ministers from the Group of Seven industrialized nations on Sept. 20 called for exchange rates that are free of government manipulation. Some traders interpreted the comment as an endorsement of a weaker dollar as way to keep the U.S. economy growing.
``The long-term trend for the dollar is for it to decline,'' said Minoru Shioiri, senior manager in Tokyo of the foreign exchange division at Mitsubishi Securities Co., a unit of Japan's third-biggest lender.
The Bush administration has suggested that Japan's practice of selling yen to slow its advance against the dollar makes that country unfairly competitive. Japan has sold more than 13.5 trillion yen ($123.8 billion) this year to slow its currency's 8.8 percent gain against the dollar and to protect profits of exporters such as Toyota Motor Corp.
Currency Effect
At the same time, a declining dollar would help the U.S. increase exports by making U.S. goods cheaper overseas and help narrow the U.S. current account deficit of 5.1 percent of gross domestic product. The current account is the broadest measure of trade and investment and has contributed to the dollar's fall.
Merrill Lynch analysts said investors should be cautious in trying to determine the outlook for currencies based solely on trade flows. A 10 percent depreciation of the dollar would improve the U.S. trade balance as a percent of gross domestic product by just 1.7 percentage points, while a smaller economy such as Canada's would improve by 4 percentage points from a similar drop in its dollar, Merrill Lynch calculations show.
``Currency investors often overestimate the importance of currency fluctuations in determining export and import growth,'' Merrill Lynch currency strategist Alex Patelis wrote in a report Friday.
Week Ahead
This week's economic data will be highlighted by Thursday's Labor Department report on jobless claims. The number of Americans filing initial applications for unemployment benefits likely held under the 400,000 level for the fourth week in five, according to the median forecast of 29 economists polled by Bloomberg News.
The four-week moving average of jobless claims benefits declined to 390,750 from 395,000 last week and companies including International Business Machines Corp. and Pfizer Inc. have announced plans to hire. The U.S. economy lost 2.6 million jobs since President Bush took office in January 2001.
``Jobs data, which was the concern for the U.S. economy, has shown some recovery, encouraging traders to buy back the U.S. currency,'' said Shigehiro Kamimura, Tokyo-based manager of the trading department at Resona Bank Ltd., Japan's fifth-largest bank.
The following survey, taken on Friday, gauges five currencies (Swiss franc, Japanese yen, Euro, British pound, Australian dollar) against the U.S. dollar.
Buy Sell Hold
Swiss franc 12 18 6
Japanese yen 16 19 7
Euro 15 24 3
British pound 20 11 7
Australian dollar 17 9 25
The following survey gauges the yen against the euro:
Buy Sell Hold
Japanese yen 16 4 7
Last Updated: October 19, 2003 11:05 EDT |
