Dollar May Drop for Second Week, Bloomberg Poll Shows (Update2)
quote.bloomberg.com
Aug. 9 (Bloomberg) -- The dollar may fall for a second week against the euro after the U.S. government reported the slowest job creation since December, raising expectations the Federal Reserve won't increase its overnight lending rate in September.
Almost 60 percent of the traders, investors and strategists surveyed on Friday from Tokyo to New York advised buying euros against the dollar, up from 26 percent a week ago. About half said to buy Japan's currency, up from 35 percent. Traders grew more pessimistic on the dollar after government figures Friday showed employment growth eased for a fourth month in July.
``Maybe the Fed is not going to embark on as aggressive a tightening stance from here,'' said Michael Rosenberg, 56, senior strategist and managing director Harbert Management Corp. in New York, an investment firm with about $5 billion in assets. He ran Deutsche Bank AG's currency research until June. ``Clearly the dollar is in a more vulnerable position.''
The U.S. currency shed 2.1 percent last week to $1.2280 per euro at 5 p.m. in New York, the biggest loss since November, according to EBS, an electronic currency-dealing system. The dollar lost 0.8 percent against the yen on the week, dropping to 110.48. The euro may end September above $1.25, Rosenberg said. The dollar traded at $1.2260 per euro and 110.57 yen at 7:13 a.m. in New York.
`Less Confidence'
Policy makers meet tomorrow for the first time since raising their target rate by a quarter-point on June 30 to 1.25 percent. Any suggestion of a pause in the pace of increases will hurt the dollar, said Larry Greenberg, 56, an international economist at Ried Thunberg ICAP in Jersey City, New Jersey.
It would ``imply they have much less confidence in the economic expansion,'' said Greenberg, a former economist on the New York Fed's currency desk. ``That's certainly not going to be good for the dollar.''
The yield on September federal funds futures fell 3 basis points to 1.53 percent on Friday, signaling traders see a 36 percent chance of the central bank lifting its rate by a quarter point at the Sept. 21 meeting, down from more than 70 percent on Thursday. Traders see a 96 percent chance of an increase to 1.5 percent on Tuesday.
American employers hired 32,000 new workers in July, an eighth of the median forecast in a Bloomberg News survey. Prior to Friday's Labor Department report, the dollar rallied 3 percent since July 20, when Fed Chairman Alan Greenspan said a lull in consumer spending would be ``short-lived.''
``The payrolls set the scene going forward into the third quarter,'' said Adam Cole, 40, a currency strategist in London at RBC Capital Markets. ``It's no longer convincing to say we've had a soft spot and the data is going to improve -- that's going to weigh on the dollar.''
Diminishing Advantage
A slower pace of Fed rate increases may diminish the yield advantage of Treasuries over European debt. U.S. 10-year Treasury yields, at 4.22 percent, are about 0.15 percentage point above 10- year German government debt yields on an annualized basis, the least since April. The European Central Bank's benchmark rate is 2 percent.
A government report Thursday may show U.S. retail sales rose 1.1 percent in July, after a 1.1 percent drop in June, according to the median forecast of analysts surveyed by Bloomberg News. The University of Michigan may say on Friday that consumer confidence rose this month, a separate Bloomberg survey showed.
`Greater Pressure'
The dollar may weaken to $1.25 per euro should this week's reports fall short of forecasts, said Stephen Jen, the chief currency economist at Morgan Stanley in London.
``If the U.S. economy falters, then the dollar may come under greater pressure,'' said Jen, 38, a former Fed economist and one- time official at the International Monetary Fund and the World Bank. In June, Jen said in a report that the dollar's two-year decline was over.
Friday's slide trimmed the dollar's advance this year to 2.6 percent against the euro and 3 percent compared with the yen. Warren Buffett's bet against the dollar and his preference for cash over other investments caused Berkshire Hathaway Inc. to post its smallest quarterly earnings since 2002.
Net income at Berkshire, run by Buffett, fell 42 percent in the second quarter to $1.28 billion, or $834 a share, from $2.23 billion, or $1,452, a year earlier, the company said on Friday.
The drop was caused by $172 million of realized investment and currency losses, compared with a $905 million gain a year earlier, when Berkshire sold most of its U.S. Treasuries. The dollar fell 16.7 percent against the euro last year and shed 9.7 percent versus the yen.
Snow's Prediction
U.S. Treasury Secretary John Snow predicts increased hiring in the remainder of the year. ``The economy has gone through a pause, but we are looking to growth rates that are very strong, and job creation that will be very substantial,'' Snow said in a interview with NBC Television's ``Today'' program on Saturday.
Futures traders boosted bets the yen will fall against the dollar, figures on Tuesday's holdings at the Chicago Mercantile Exchange show. The number of wagers by hedge funds and other large speculators on a yen fall exceeded those on a yen gain by about 3,300, up from 2,400 a week earlier.
Prior to the Labor Department report, the yen reached a one- week low of 111.90 per dollar Friday as the price of crude oil touched a record high above $44 a barrel. Japan imports virtually all its oil, according to government figures.
``If the oil price continues to go higher, then the dollar will stabilize'' against the yen, said Paul Lambert, 36, head of global currencies in London at Deutsche Asset Management and a former Bank of England economist.
Slowing Japanese Growth
Japan's economy probably grew at a 4.2 percent annualized pace in the second quarter, down from 6.1 percent in January to March, the government is projected to say Friday, according to the median forecast of 23 analysts surveyed by Bloomberg News.
The predicted growth rate would be 1.2 percentage point above the U.S. economy's expansion last quarter, narrowing from a 1.6 percentage point advantage for the first quarter and 3.1 points for the final three months of last year.
The report ``will show Japanese growth outpaced that of the U.S. for a third straight quarter, but the difference in speed is narrowing,'' said Tohru Sasaki, 36, chief currency strategist in Tokyo at J.P. Morgan Chase & Co.
``Because the yen is often dictated by how growth differentials between the two economies shift, the GDP report may not necessarily support the yen,'' said Sasaki, a former Bank of Japan official.
Also this week, Germany may say its economy, Europe's biggest, grew at a 1.9 percent non-seasonally adjusted rate in the second quarter from the same period last year, according to the median forecast of 10 analysts surveyed by Bloomberg News. The growth rate was 1.5 percent in the first quarter. The report is scheduled for release on Thursday.
Following are the results of Bloomberg's survey:
BUY SELL HOLD
Euro 50 24 13
Yen 41 28 18
British pound 39 27 19
Swiss franc 42 24 16
Australian dollar 44 20 20
Euro versus yen BUY SELL HOLD
31 17 25
To contact the reporter on this story:
Mark Tannenbaum in New York at at mtannen@bloomberg.net.
To contact the editor responsible for this story:
Daniel Moss at
or dmoss@bloomberg.net.
Last Updated: August 9, 2004 07:14 EDT |
