Dollar Falls for a Fourth Day This Week vs the Yen as U.S. Stocks Sputter
Dollar Falls Against Yen as U.S. Stocks Sputter (Update1) (Adds Canadian dollar in 11th paragraph. Updates rates.)
New York, Sept. 4 (Bloomberg) -- The dollar fell against the yen, reversing earlier gains, as U.S. stocks dropped and on waning prospects the Federal Reserve would lower interest rates. ''The fact that stocks can't sustain a rally and Latin America concerns persist make me concerned about the dollar,'' said John Rothfield, international economist at NationsBanc in Chicago. ''We don't think the current environment is a time to be buying dollars.'' He sees the currency falling as low as 130 yen and 1.70 deutsche marks next week.
In late New York trading, the dollar declined to 133.90 yen, down from 134.23 yen yesterday and after climbing as high as 135.99 earlier. It rose to 1.7350 marks from 1.7275, though down more than from an earlier high of 1.7439.
For the week, the dollar dropped 5.8 percent against the yen and 1.6 percent versus the mark. Much of that came from investors selling dollars to compensate for losses in emerging markets, such as Russia and Latin America -- a trend that continued today. ''We've seen wave after wave of forced liquidation,'' said Jamie Coleman, senior foreign exchange analyst at Thompson Global Markets in Boston.
The dollar began to give up gains after the Labor Department said the U.S. economy added a healthy 365,000 jobs last month, as expected, giving the Federal Reserve less incentive to change its interest rate policy. Lower rates, which some analysts said are needed to calm global financial markets, are good for U.S. stocks because they stimulate consumer spending and reduce company borrowing costs.
The U.S. currency slipped further against the yen after stocks failed to keep early gains. The Dow Jones Industrial Average, which rose 75 points in early trading, fell as much as 189 points before settling at 7640.25, down 41.97.
Lock Step
While lower rates normally hurt the dollar in the long term because it makes some dollar-denominated assets less attractive to global investors, traders say the reverse is true now because the dollar's direction has been closely tied to the stock market. ''Everybody's been taking their cue from stocks,'' said Andrew Grossman, a trader at Norddeutsche Landesbank.
Most stock markets across Latin America also fell amid concern about a regional slowdown. Such a scenario could hurt growth in the U.S. because of the country's strong trade ties to the region.
In other trading, the dollar fell against the Canadian dollar after an employment report indicated Canada's economy is growing at a healthy pace. The dollar fell 1 percent to 1.5217 Canadian dollars from 1.5365 yesterday.
In the latest sign of turbulence in the currency markets, Ukraine's central bank said it would let its currency, the hryvnia, fall as much as 32.5 percent to 3.5 to the dollar by year-end. The move was triggered by growing pressure from the Aug. 17 devaluation of the Russian ruble, the central bank said.
In the U.S., with the long Labor Day weekend approaching, traders said some investors are selling because there's a perception the dollar is vulnerable to further losses. ''In the present environment, where everyone seems to be risk-adverse, people are eager to get out of dollar, especially with the long weekend coming up,'' said Robert Katz, a trader at MTB Bank.
Rubin Meets Miyazawa
Meanwhile, traders expect little news to emerge from today's meetings between Japanese Finance Minister Kiichi Miyazawa and U.S. Treasury Secretary Robert Rubin in San Francisco. ''They'll be concentrating more on Japanese reforms,'' said Rothfield. ''I don't think there's going to be a change in dollar policy.''
The dollar rose against the yen and mark in Asian and European trading as some investors decided the dollar's decline this week was overdone, given that the U.S. economy is far from stalling.
In contrast, Japan's economy has ''worsened further'' from last month and remains in a ''slump,'' said Taichi Sakaiya, head of the government's Economic Planning Agency.
Next Friday, Japan will release figures on its gross domestic product for the April-June quarter. Economists polled by Bloomberg News predict it was the third straight quarterly contraction.
Also giving the dollar an early boost, Bundesbank President Hans Tietmeyer said late yesterday that the dollar's recent drop against the mark and yen is of a ''technical'' nature and doesn't reflect an underlying weakness of the U.S. economy.
Next Week
Many traders expect the dollar to recover next week as attention shifts back to underlying economic forces. ''It's back to the fundamentals,'' said Domenick Presa, chief trader at Generale Bank. ''Japan is gloomy. What are you doing selling the dollar at 133 yen?''
The Bundesbank also could act to help support the U.S. currency, Coleman said, because it doesn't want too weak a dollar before the January start of the euro, Europe's planned single currency.
Germany would ''rather see the euro gradually strengthen after the introduction rather than ahead of its introduction,'' he said. ''The Bundesbank made a pretty strong statement on the dollar. They'll be willing to back it up next week. We've probably seen the low for dollar-mark.''
The Fed last changed rates in March 1997, raising its target rate for overnight loans between banks by a quarter point to 5.50 percent. U.S. economic growth slowed to an annual 1.6 percent in the second quarter this year, from 5.5 percent in the first quarter.
Elsewhere, sterling fell to $1.6705 from $1.6760 yesterday. The dollar rose to 1.4237 Swiss francs from 1.4180 francs and to 1712 Italian lire from 1705.50 lire. It was little changed at 5.8030 French francs from 5.8130 francs.
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