Clark - re Brazil
Dollar Sets 28-Month Low vs Yen Amid Brazil Concern (Update6)
London, Jan. 11 (Bloomberg) -- The dollar tumbled to a 28-
month low against the yen on concern Brazil's debt and currency
woes will crimp economic growth in the U.S., which does a fifth
of its trade with Latin America.
The yen also got a boost from speculation that Japanese
investors and firms, eager to show gains on their balance sheets
before the fiscal year ends on March 31, will sell higher-
yielding assets overseas and convert the dollar proceeds to yen.
''If things go wrong in Brazil, that's going to have a
negative effect on emerging markets, U.S. markets and most
importantly, the dollar,'' said Tom Berger, head of fixed income
at Invesco Asset Management, which oversees $9 billion in London.
Also in the yen's favor, ''there are going to be capital flows
into the yen because of the (fiscal) year-end.''
The dollar fell as low as 108.53 yen, its lowest since Aug.
30, 1996, when it fell to 108.29. That was its largest decline in
almost two months. In midday trading in London, it fell to 109.15
yen from 110.85 late Friday.
The dollar was little changed against the European Union's
single currency, leaving the euro at $1.1595, compared with
$1.1585 late Friday. Traders avoided the euro after reports
pointed to a slowing economy in Germany, the largest of the 11
nations that adopted the euro. Those reports fueled expectations
for lower European interest rates.
Some traders also sold dollars amid speculation a drawn-out
impeachment trial of President Bill Clinton would sour global
investors on U.S. assets.
The U.S. currency could fall as low as 105 yen in the coming
days, said Tony Norris, a director at First International
Advisors Ltd., which has more than $300 million under management.
Latin Tangle
In Brazil, speculation spread that Brazilian Finance
Minister Pedro Malan would resign. That raised concern the
country would back away from a commitment to financial reforms it
needs to make get international aid. Brazil's Finance Ministry
denied Malan intended to resign.
Concern deepened after Estado de S. Paulo, a Brazilian
newspaper, said Brazil will report a trade deficit in 1999,
missing a target set in its November agreement with the
International Monetary Fund. The article cited preliminary
figures released by the Brazilian Foreign Trade Association.
The speculation about Malan and the trade gap aggravated a
decline by Brazilian stocks and bonds last week. They fell after
a Brazilian state, Minas Gerais, said it would delay paying some
of its debt to the federal government. Other states threatened
to follow suit.
''The problems in Brazil are terrible for the dollar,'' said
Conrad Mattern, a currency analyst at DG Bank in Frankfurt.
Bring It On Home
The dollar also was dragged down amid speculation that
Japanese investors, eager to show gains on their balance sheets
before the fiscal year ends on March 31, may sell higher-yielding
assets overseas and convert the dollar proceeds to yen.
''There's some repatriation by Japanese investors who are
mindful of the potential for further yen appreciation,'' said
Alan Wilde, who manages about $3.5 billion of bonds at Scottish
Mutual Portfolio Management.
The yen's gains, which increase the price of Japanese
exports, fueled talk that Japanese officials may soon sell yen to
weaken the currency. Japanese Vice Finance Minister Koji Tanami
said the yen's ''excessive strength is undesirable'' and Japan is
ready to act to curtail its gains against the dollar.
Trying Clinton
The U.S. currency also was hurt by concern Clinton's
impeachment trial will lead some global investors to avoid U.S.
stocks and bonds and the dollars needed to pay for them.
''What weighed on the dollar was uncertainty over Clinton's
impeachment trial,'' Yasuharu Tsuru, a manager for international
treasury division at Mitsubishi Trust & Banking Co. in Tokyo,
said.
The U.S. Senate agreed Friday to begin Clinton's trial later
this week, while postponing a decision on whether to call
witnesses to testify. The agreement ended a week of doubt over
how the Senate would proceed with the first impeachment trial of
a president in 131 years.
The dollar still might gain against the yen and euro in
coming weeks, supported by signs of strength in the U.S. economy.
A report Friday showed U.S. unemployment fell to a 28-year low of
4.3 percent in December as companies adding 378,000 new workers.
That made it less likely the Fed will lower interest rates soon.
Euro Slowdown
Meantime, a report today showed that orders to Germany's
manufacturing industry unexpectedly fell 1.5 percent in November,
reinforcing expectations for a German slowdown and giving the
European Central Bank added reason to lower interest rates to
keep the nations that adopted the euro from slowing too much.
Another report on Friday showed Germany's unemployment rate
unexpectedly rose in December, to 10.8 percent, kindling
speculation the European Central Bank will cut rates in coming
months to keep growth in the euro nations from slowing too much.
''Europe is definitely slowing down,'' said Jeff Woodruff, a
currency strategist at BankBoston. ''As that comes into play,
we'll see the dollar strengthen against the euro. European
unemployment is double that in the United States.''
Dominique Strauss-Kahn, France's finance minister, said
European interest rates could be cut in the coming months
providing European inflation, currently about 1 percent, remains
low.
''It seems to me today not inconceivable that interest rates
continue to fall in Europe'' as long as they are accompanied by
continued government efforts to reduce budget deficits, Strauss-
Kahn said in a French television interview.
Benchmark interest rates in the 11 nations adopting the euro
were cut to 3.00 percent before the European Union adopted its
single currency on Jan. 1. The comparable U.S. rate for overnight
borrowing between banks is at 4.75 percent, making the dollar
relatively more attractive than the euro.
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