U.S. Dollar May Decline Against Euro This Week, Survey Suggests
Sept. 1 (Bloomberg) -- The dollar may decline against the euro this week on speculation a 7 percent rise in the U.S. currency in the past three months overstates prospects for U.S. economic growth, according to a survey by Bloomberg News.
Almost half of the 33 analysts, traders and investors polled from Tokyo to New York on Friday recommended selling the U.S. currency against the euro, up from about 9 percent a week ago. The dollar has strengthened to $1.0984 from a record low of $1.1933 per euro on May 27 as economic reports pointed to faster economic growth.
``The dollar has rallied as much as it can for now on improvement in the U.S. economic outlook,'' said Michael Woolfolk, a currency strategist at the Bank of New York, the world's second largest custodian of investor assets. Woolfolk, based in New York, was among those who predicted a drop in the dollar this week.
Against the euro, the dollar fell for the first week in three last week, declining about 1 percent as of Friday from $1.1507 the week before. The slide was contrary to the results of a Bloomberg survey the previous week, in which 74 percent of people polled recommended buying the dollar.
Compared with the yen, the U.S. currency fell 0.6 percent last week to a three-month low of 116.65 yen. Participants in the survey were divided as to whether to buy the yen this week.
Traders may focus on any remarks by U.S. Treasury Secretary John Snow, who will meet with Japanese officials this week. The Treasury has said Snow, who voiced a preference for minimal meddling with exchange rates, will discuss currencies in Tokyo and Beijing on his Asian trip.
`Less Impact'
The U.S. economy may grow at a 3.6 percent annual pace in the current quarter and at a 3.7 percent rate in the final three months, according to the median forecast of economists in a Bloomberg News survey.
Investors are ``coming to terms with the likelihood of a pretty robust'' growth rate in the second half, said Nicholas Pifer, head of global fixed income at American Express Co. in Minneapolis, which manages about $220 billion in assets.
As a result, figures pointing to an accelerating expansion ``seem to be having less impact in supporting the dollar,'' said Pifer. It may drop to $1.1150 per euro this week, he said.
By contrast, the currency shared by a dozen European Union nations dropped from its all-time high as prospects for growth dimmed. The EU last month predicted growth in the euro region will be between zero and 0.4 percent in the third quarter and 0.2 percent to 0.6 percent in the fourth quarter.
Interest Rates
Growth in the U.S. has been spurred by tax cuts from President George W. Bush and 13 interest rate reductions since 2001 from the U.S. Federal Reserve. The Fed's benchmark rate is at 45-year low of 1 percent and may stay there for some time, said Vincent Reinhart, director of the Fed's Division of Monetary Affairs.
The correct policy ``may be to coast'' at those levels ``even though the economy may not yet have achieved an acceptable performance,'' Reinhart said on Saturday at the Kansas City Federal Reserve's annual symposium in Jackson Hole, Wyoming.
``We have a strong economy,'' said Robert Heller, a Fed governor from 1986 to 1989, in a telephone interview from his home in San Francisco. At the same time, ``there will come a point where foreigners will not continue to accumulate as many dollars as they have had in the past and that would put downward pressure on the dollar,'' said Heller, who didn't participate in the survey.
The U.S. needs to attract $1.5 billion a day in foreign capital to compensate for its current-account deficit, which rose to a record $136.1 billion in the first quarter. The dollar is down 9.5 percent against the euro in the past 12 months.
Relative Strength
Technical indicators also suggest the U.S. currency will probably decline in coming days, according to analysts including Woolfolk at the Bank of New York.
They point to the so-called 14-day relative-strength index for the euro-dollar exchange rate, which has held for the past seven days out of six below a reading of 30, a signal that selling of euros has peaked. Traders and analysts use the index to identify possible turning points by calculating the degree to which daily gains outpace daily losses in a given period.
The forecast decline in the dollar this week ``is as much a technical correction than anything else,'' Woolfolk said.
Government and industry reports this week will probably provide more evidence that the pace of economic growth in the U.S. is picking up. Manufacturing may have expanded for a second month, according to the median forecast of 48 economists surveyed by Bloomberg News. The Institute for Supply Management's factory index, to be released on Tuesday, probably rose to 53.5 last month from 51.8 in July. Readings above 50 signal expansion.
Pimco's Dollar Call
A separate report on Friday may show U.S. companies created 20,000 jobs in August, the first increase in seven months, based on the median forecast of 53 economists. The unemployment rate probably remained at 6.2 percent.
Government figures last week showed gross domestic product, the value of all goods and services, expanded at a 3.1 percent pace in the second quarter, faster than previously estimated. Still, growth would have to be even stronger to push the dollar higher, some analysts said.
``You would need to see GDP growth sustained between a 3 percent to 5 percent range with the rest of the world lagging and you need to see sustained asset returns'' to justify a further strengthening in the dollar, said Sudesh Mariappa, who oversees $28 billion of global bonds at Pacific Investment Management Co. in Newport Beach, California.
The dollar will trade between $1.07 per euro and $1.15 per euro, said Mariappa at Pacific Investment Management, or Pimco, who took part in the survey.
Divided on Yen
Traders, analysts and investors are divided on prospects for the dollar against the yen. Japan's currency rose in trading on Friday after a government report showed the country's factories made more than twice the amount of goods in July than forecast by economists surveyed by Bloomberg News.
Industrial production jumped 0.5 percent from June. Japan's economy, the world's second largest, grew at an annual rate of 2.3 percent in the second quarter, almost four times analysts' predictions.
``Japan is recovering at a more sustainable pace,'' said Lionel Kwok, chief investment officer at BOCI-Prudential Asset management in Hong Kong, which manages $2.3 billion.
Also on Friday, the Ministry of Finance said the government refrained from selling its own currency in the month ended Aug. 27, only the second such occasion this year. At the behest of the ministry, the Bank of Japan sold a record 9.03 trillion yen ($77.4 billion) from January through July.
Following are the results of the Bloomberg survey:
BUY SELL HOLD
Swiss franc 11 13 10
Japanese yen 14 15 6
Euro 17 13 6
British pound 16 10 8
Australian dollar 16 12 8
Last Updated: August 31, 2003 11:05 EDT |
