Alex do you know anyone taking profits in Gold? That is before today?
Dollar Falls Against the Yen, Mark as U.S. Stocks Erase 1998 Gains
Dollar Falls vs Mark, Yen as U.S. Stocks Extend Loss (Update3) (Adds more on dollar-yen, dollar-mark in 1st sentence, economist on Dow in 5th paragraph. Updates rates.)
New York, Aug. 31 (Bloomberg) -- The dollar fell to a nine- month low against the mark and a six-week low against the yen as U.S. stocks plunged, with the benchmark Dow Jones Industrial Average suffering its worst rout in 10 months, erasing its 1998 gains and then some. ''The dollar is following the stock market,'' said James McGroarty, a portfolio manager at Orbitex Management Inc., an investment advisory firm. ''If equities stay weak, the dollar is likely to go lower.''
In late New York trading, the dollar fell to 1.7470 marks from 1.7589 Friday. Earlier, it sank to 1.7300 marks, its lowest level since Nov. 24. The dollar tumbled to 139.30 yen from 141.77. It touched an intraday low of 138.83 yen, the lowest since July 20.
The dollar seesawed against the mark today, plunging in Asian trading on concern over U.S. stocks, then soaring more than 4 pfennig on signs of political disarray in Russia. It reversed course again as the Dow fell 512.61 points, or 6.37 percent, to 7539.07. Friday's stock decline helped drive the dollar down more than 2 percent against the mark because global investors selling stocks often convert their dollar proceeds to other currencies. ''The Dow is the dominant factor for the dollar right now,'' said Earl Johnson, international economist at Bank of Montreal in Chicago. ''If the Dow goes down, the dollar's going down. I'm not willing to say this is the bottom for the Dow by any means.''
The U.S. currency's 17 percent gain versus the mark and 13 percent gain against the yen last year were fueled in part by a roaring U.S. stock market.
Russia
In earlier trading, the U.S. currency gained against the mark as Russia's Communist-dominated lower house of parliament rejected Viktor Chernomyrdin as prime minister, leaving the country without a government and reinforcing concern the stock market and ruble could decline further. Problems in Russia often sour traders on Germany, its biggest lender and trading partner. ''Things still appear to be quite unsettled in Russia and that will keep some pressure on the mark,'' McGroarty said.
Chernomyrdin's confirmation was seen as critical to steadying the country's rocky political scene after President Boris Yeltsin fired his entire Cabinet a week ago and Russians rushed to change rubles for dollars. ''What's going to happen to the reforms?'' said Roger Chapin, manager of foreign exchange at Banc One Corp. If the economy falters further, ''that's not going to make outside investors happy. The German government's been financing Russian loans, so guess who gets to pay the Russian bills.''
Expectations of Chernomyrdin's defeat helped push Russian stocks and the ruble lower. The government effectively devalued the currency Aug. 17.
U.S. Rates
The dollar's gains also were held in check by speculation the U.S. Federal Reserve may lower its benchmark lending rate before long to ease pressure on troubled financial markets in Russia, Asia and elsewhere. ''Before, there was an expectation there would possibly be one more interest rate hike'' in the U.S., said Chapin. ''That's now gone, so that's going to undermine the dollar.''
In one indication that rates may be headed lower, yields on U.S. Treasuries of all maturities are now lower than the Fed's 5.50 percent rate for overnight borrowing between banks. That means investors see little risk that inflation will erode the fixed value of even long-term bonds.
Growing expectations for a cut in rates can be seen in futures on Eurodollars, or dollars on deposit outside the country. The securities are among the most sensitive to Fed interest-rate expectations.
The implied rate on the December contract for three-month Eurodollars was 5.38 percent, compared with 5.73 percent a month ago. That puts the rate about 25 basis points lower than the current three-month borrowing rate, and suggests more investors expect a rate cut by year end.
Lower U.S. interest rates would lessen the appeal of dollar- denominated deposits and bonds.
Japan 'Bad News'
To be sure, the dollar could gain against the yen in coming days amid signs Japan's economy, mired in recession, will remain in the doldrums. A spate of reports showed builders started fewer new homes, factories cut production and retailers sold less in July. ''You had more bad news out of Japan -- three bad indicators,'' said Bob Lynch, a currency strategist at Paribas Corp. ''Once the smoke clears, Japan is still going to come up short, and the negative bias for the yen is likely to continue.''
Industrial production fell 0.8 percent in July from June, the Ministry of International Trade and Industry said, the fifth decrease in the last six months. Economists surveyed by Bloomberg News expected an 0.2 percent reduction. Housing starts tumbled 11.3 percent in July from the same month a year ago, according to the Construction Ministry. Economists forecast a 4.4 percent slide.
The trade ministry also said sales at large retail stores fell 3.9 percent on the year, the 15th drop in the last 16 months and worse than the 2.8 percent drop forecast by economists.
Weakness in the economy suggests the Bank of Japan won't soon raise its benchmark discount rate, now at 0.5 percent, an all-time low. Today, the yield on the benchmark No. 182 bond, maturing in September 2005, fell to a record low of 1.04 percent.
According to the New York Times, that was the lowest long- term bond yield in recorded history, below the 1.125 percent offered by the Italian city-state of Genoa in 1619.
Traders are turning their attention to a meeting set for Sept. 4 between Fed Chairman Alan Greenspan, Treasury Secretary Robert Rubin and Japanese Finance Minister Kiichi Miyazawa in California. Miyazawa told reporters earlier this month he and Rubin would discuss the currency market and economic issues in Asia and Russia.
Officials from the U.S. and Japan jointly sold dollars to bolster the yen June 17, amid talk that its weakness was putting pressure on other Asian currencies. Now that the dollar is down 3.7 percent from the eight-year high it reached June 16, U.S. and Japanese officials may tone down complaints about a weak yen.
Elsewhere, the British pound was little changed at $1.6823 from $1.6815. The dollar fell to 1.4317 Swiss francs from 1.4409 francs, to 5.8670 French francs from 5.8960 francs and to 1726 Italian lire from 1738.10 lire. The U.S. currency rose to 1.5670 Canadian dollars from 1.5620.
bloomberg.com |
