Dollar Gains; Bies Says U.S. Attracting `Tremendous' Investment Listen
Feb. 8 (Bloomberg) -- The dollar climbed to an almost two- month high against the yen after Federal Reserve Governor Susan Bies said the U.S is attracting a ``tremendous amount'' of investment.
The dollar is up 3 percent against the yen and 6.2 percent versus the euro this year. The U.S. currency is being buoyed by prospects for higher interest rates and predictions by Fed Chairman Alan Greenspan that the record U.S. current-account and fiscal deficits may narrow, said traders such as Hugh Walsh at Fortis (USA) Financial Markets in New York.
Fed officials ``don't seem to be as concerned about the current account; that's one of the reasons you've seen the rally in the dollar,'' said Walsh, whose firm is a unit of Belgium's biggest financial-services company. ``This rally might continue'' to $1.24 per euro and 109 yen in a month, he said.
Against the yen, the dollar rose to 105.70 yen at 3:08 p.m. in New York, from 104.84 late yesterday, after reaching 105.95, the strongest since Dec. 10, according to electronic currency- trading system EBS. It traded at $1.2773 per euro, from $1.2756 yesterday, when it reached $1.2732, the strongest since Nov. 3.
``There's been a pretty strong rally in the dollar and that's caused a lot of people to shift back into selling the yen,'' said Derek Halpenny, a currency strategist at Bank of Tokyo Mitsubishi in London.
The bank on Feb. 1 lifted its forecasts for the dollar after the currency in January had its best month against the euro since 2001 and the biggest gain versus the yen since July. Halpenny said the U.S. currency may gain to 106 yen and $1.2620 per euro this week. UBS AG, the largest currency trader, yesterday raised its dollar estimates.
`Fuel to the Fire'
Bies said in a speech late yesterday that the U.S. attracts ``a tremendous amount of foreign direct investment.'' Greenspan said on Feb. 4 in London that ``market pressures'' may help ``decrease the U.S. current-account deficit and its attendant financing requirements.
Bies's was ``another upbeat remark in a time when the dollar is quite buoyant; it adds fuel to the fire,'' said Tom Molloy, a currency trader at Bank Leumi USA. ``The Fed is definitely more relaxed'' about the dollar and deficits. The dollar may rally another 2 percent in the next month, he said.
``It has more room to go,'' potentially to $1.2625 in the next few days, said John McCarthy, a director of currency trading in New York at ING Financial Markets LLC. Greenspan's remark last week ``takes the foot off the accelerator of selling dollars.''
The value of foreign-owned U.S. assets, including purchases of stocks and bonds and direct investment in businesses and real estate, rose by $286.4 billion in the third quarter after a $270.7 billion increase in the previous three months, government statistics show.
Moving Average
The dollar will probably extend its rally against the euro, until it reaches the 200-day moving average for the exchange rate, currently about $1.2565, said Brian Taylor, chief currency trader at Manufacturers & Traders Trust Co., and Tom Fitzpatrick, chief technical analyst at Citigroup Inc. in New York.
``It may take a week, but I think that's where the decline will end,'' said Taylor, based in Buffalo, New York. At about $1.25, ``people will start looking to buy euros.''
UBS yesterday boosted forecasts for the dollar, saying it will probably gain further after rallying in January. The bank raised its projections to $1.27 per euro in one month and $1.30 in three months, from $1.34 and $1.36 respectively. The dollar may rise as high as $1.2485 per euro in the next three months, UBS said.
Japan's currency fell to 134.99 per euro from 133.75 yesterday, after Chinese central bank Governor Zhou Xiaochuan said China's currency isn't undervalued, in an interview with state-run Xinhua News Agency. A stronger yuan would make China's exports costlier.
Dollar Versus Asian Currencies
Zhou's comments came two days after a meeting of the Group of Seven nations in London ended without an indication from China that it's close to relaxing its decade-old peg to the dollar.
``Dollar buying against Asian currencies is going to continue this week,'' said Adam Myers, a currency strategist at Societe Generale SA in London. ``There are a lot of people that are long on the yen and still haven't cut their positions but if the move goes much further they'll be selling.''
The dollar may climb to 107 yen in two weeks, though U.S. trade figures this week could undermine the rally, he said.
Government statistics on Feb. 10 will probably show the U.S. trade deficit narrowed in December for the first time since September, to $57 billion from a record $60.3 billion in November, according to the median forecast of 65 economists surveyed by Bloomberg News.
``The longer-term trend is still for the trade deficit to remain a significant negative for the dollar,'' said Steve Barrow, a currency strategist at Bear Stearns Cos. in London. ``It doesn't matter what Greenspan or Bush says about the current account or the budget deficit.''
Bush's Budget
Barrow projects the dollar will decline this year to a record $1.45 per euro and to 90 yen, the weakest in 10 years.
President George W. Bush yesterday proposed a budget for the 2006 fiscal year, which begins Oct. 1, that would reduce the fiscal deficit by 8.7 percent from an estimated record $427 billion this year.
Record current-account and budget deficits helped spur three straight annual declines in the dollar against the yen and the euro through 2004. The current-account gap was $164.7 billion in the third quarter. The gap means the U.S. must attract about $1.8 billion daily to compensate for the shortfall and maintain the dollar's value, according to Bloomberg calculations.
The U.S. central bank on Feb. 2 lifted its target rate for the sixth time since June to 2.5 percent. By contrast, the European Central Bank has kept its benchmark at 2 percent since June 2003 and the Bank of Japan has left its main rate near zero since 2001.
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