Dollar Gains, Heading for the Longest Rally in More Than a Year
Jan. 6 (Bloomberg) -- The dollar rose against the euro for a fifth day, the longest advance in more than a year, on optimism an acceleration in U.S. job growth will bolster the case for higher interest rates.
The U.S. currency also gained versus the yen on the eve of a Labor Department report that may say employers added 175,000 workers last month, according to median forecast in a Bloomberg survey. The Federal Reserve said two days ago that its target interest rate is too low to slow inflation.
``Nobody wants to be aggressively selling the dollar ahead of a jobs report that could be very strong -- that's likely to keep the dollar on the front foot for the rest of the week,'' said Kamal Sharma, a currency strategist at Dresdner Kleinwort Wasserstein in London. ``We could get down to $1.3130 this week, but then we'd be looking to buy euros again.''
Against the euro, the dollar rose to $1.3186 at 10:24 a.m. in London, from $1.3261 late yesterday in New York, according to electronic foreign-exchange trading system EBS. It hasn't gained for five straight days versus the euro since October 2003. The U.S. currency also advanced to 104.84 yen, from 104.14.
Fed Bank of Kansas City President Thomas Hoenig, who doesn't vote on rates this year, will speak today on the economy to business leaders in Kansas City. The Fed lifted its target rate for overnight bank loans five times last year, to 2.25 percent, a quarter point above the European Central Bank's benchmark.
``You have to watch Fed comments closely for any additional support they may give to the idea they want to be more aggressive in raising rates,'' said Richard Yetsenga, a currency strategist in Hong Kong at HSBC Holdings Plc. ``That would build on the yield differential argument for the dollar.'' HSBC forecasts the dollar at $1.34 at the end of March.
`Spectacular Number'
The dollar has this week risen more than 3 cents against the euro. It rose by 2 yen two days ago. Such a movement is ``wild,'' and Japan will act on currencies as necessary, Vice Finance Minister Hiroshi Watanabe told reporters in Tokyo today.
Further gains in the dollar may be limited as some traders will probably place fresh bets on the dollar to slide, said Kristjan Kasikov, a currency strategist in London at Calyon, the investment-banking unit of Credit Agricole SA.
Tomorrow's U.S. job growth figure would have to exceed 200,000 for the dollar to extend gains, Kasikov said. ``It will take quite a spectacular number to inspire any more buying.'' Calyon predicts the dollar will fall to $1.35 per euro and 102 yen at the end of the first quarter.
The euro stayed lower after the Bloomberg purchasing manager index for the 12-nation euro region showed retail sales rose for the first month in five in December. The gauge compiled for Bloomberg by NTC Research Ltd. climbed to a seasonally adjusted 50.6 from 48 in November.
Volkswagen's Loss
Volkswagen AG, Europe's biggest carmaker, lost 1 billion euros ($1.3 billion) in the U.S. last year, partly because of a falling dollar, Chief Executive Officer Bernd Pischetsrieder said in an interview. An aging product line and rising rebates also contributed, he said at the Los Angeles auto show yesterday.
The company reported a seventh consecutive decline in quarterly profit in October. Pischetsrieder said Volkswagen still met its 2004 profit target as cost cuts balanced a drop in the dollar that cut its earnings in the U.S. and China.
The dollar dropped 7 percent in 2004 against a basket of major currencies, hurt by concern record U.S. current-account and budget deficits will undermine demand for the currency. It fell to a record $1.3666 per euro on Dec. 30.
Dollar `Battle'
``What we see currently is that there's a battle going on for people's attention, between growth and the interest-rate differential and the current-account deficit,'' said Michael Klawitter, a currency strategist at West LB AG in Dusseldorf.
``The selling pressure today is coming from hedge funds but I'm still fairly cautious about this trend,'' said Klawitter, who expects the dollar will fall to $1.35 per euro and 101.50 yen by the end of March.
Minutes from the Fed's Dec. 14 meeting released on Jan. 4 said rates are ``below the level'' needed to slow inflation. Fed policy makers are next scheduled to meet on Feb. 1-2.
Yields on interest-rate futures have risen as traders raised bets for U.S. rate increases this year. The yield on December Eurodollar futures contracts was 3.71 percent in Singapore, from 3.44 percent a month ago. The contract settles at a three-month lending rate that has averaged 0.22 percentage point above the Fed's target in the past 10 years.
`Another Sell-Off'
The shortfall in the current account, the widest measure of trade because it includes some investment flows, reached a record $164.7 billion in the third quarter. A wider deficit means more dollars need to be converted to other currencies to pay for imports. The U.S. also had a record $412 billion federal budget deficit for the fiscal year ended Sept. 30.
``A weak payrolls number will remind everyone about the twin-deficit problems facing the dollar and start another sell- off,'' said Tomohisa Kawaguchi, manager of foreign exchange in Tokyo at Citigroup Inc. The bank forecasts the dollar will decline by the end of March to a record $1.39 per euro and to 98 yen, a level not seen since 1995.
Last Updated: January 6, 2005 05:28 EST
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