Dollar Falls to Record Against Euro, Drops Versus Pound, Yen
Dec. 8 (Bloomberg) -- The dollar fell to $1.22 to the euro for the first time and dropped to its lowest in more than a decade against the British pound on speculation the Federal Reserve will keep interest rates at a 45-year low in coming months, cutting the appeal of U.S. investments.
The dollar also extended its losses against the yen, to the lowest since November 2000.
Fed policy makers tomorrow will keep their target rate at 1 percent, according to all 77 economists surveyed by Bloomberg News, half the European Central Bank's rate. The Fed since August has said it can keep rates low for ``a considerable period.''
``Until we see a turn in the U.S. interest-rate cycle, there will be no relief for the dollar,'' said Adam Cole, a currency strategist in London at Credit Agricole Indosuez SA. ``They'll maintain the `considerable period' clause.''
Against the euro, the dollar traded at $1.2224 at 9:10 a.m. in New York, from $1.2170 late Friday in New York. It fell to 107.25 yen from 107.70 on Friday.
The dollar slid to as low as $1.7363 against the pound, its lowest since October 1992. The dollar, which has fallen to a record against the euro for seven straight days, may drop to $1.30 by mid-2004, Credit Agricole's Cole said.
Currencies that earn higher interest rates, such as the Australian dollar and the British pound, are benefiting as investors seek greater returns. In Australia, where the central bank's key rate is 4.25 percentage points more than the Fed's rate, the local dollar rose to its highest in more than six years.
`Less Foreign Interest'
``There is less foreign interest'' in U.S. securities than in recent years, ``and there's greater U.S. investor interest in exploring investment opportunities abroad,'' said Lara Rhame, a foreign exchange economist at Brown Brothers Harriman & Co. in New York. ``It's a one-two punch for the dollar,'' which will weaken to $1.40 per euro and 100 yen by the end of next year.
Investors will focus tomorrow on whether the Fed removes from its statement a commitment to keep rates low ``for a considerable period.'' Twelve of the 22 so-called primary U.S. government securities dealers expect the Fed to drop the phrase.
``If it does drop it then we could see a rally in the dollar to below $1.20 against the euro,'' Steve Barrow, senior currency strategist in London at Bear Stearns told Bloomberg News in a televised interview. ``Though it would be a short-lived rally.''
Sixty-nine percent of the 54 strategists, investors and traders polled Friday from New York to Tokyo advised buying or holding the euro against the dollar this week. Similar surveys predicted the dollar's fall against the euro in the past three weeks.
`Slow the Move'
The yen also rose against the dollar on investors' expectations Japan's economy is strengthening. The Japanese currency has climbed 10.4 percent against its U.S. counterpart this year.
The Bank of Japan's quarterly Tankan index of business confidence rose to its highest level in three years, a report Friday will probably show, according to the median prediction in a Bloomberg News survey of 40 economists.
Foreign investors have been net buyers of stocks for 30 of the past 33 weeks, the Ministry of Finance said last week. The BOJ has responded to the yen's 10 percent rise this year by selling record amounts of its currency.
The Tankan, ``will support Japan's recovery story and help the yen,'' said Jake Moore, currency strategist in Tokyo at Barclays Capital Inc. ``Any positive news and you get the BOJ sitting on the other side, but it can only slow the move. It can't stop the yen's strength.''
The Bank of Japan, on behalf of the Ministry of Finance, sold a record 17.8 trillion yen ($165.2 billion) this year. Zembei Mizoguchi, Japan's vice finance minister for international affairs, said the government would ``take action as needed'' in the foreign exchange market.
Watanabe
Japan doesn't set a specific target for the yen, said Hiroshi Watanabe, head of the Ministry of Finance's international department, according to the Independent newspaper. The ministry is ``looking to stabilize the currency in the range of 108 to 110 to the dollar,'' which he believes overvalued for the nation's industry, Watanabe was quoted as saying.
The Dollar Index, which charts the currency against a basket of six currencies of U.S. trading partners, was trading at 88.72, the weakest since January 1997. It remains 14 percent above its lowest level of the past decade, 78.19, in September 1992.
The pound was last at current levels a month after the U.K. withdrew from the European Exchange Rate Mechanism, in which countries agreed to curb fluctuations in their currencies in preparation for the introduction of the euro.
Norman Lamont, then chancellor of the exchequer, ordered the Bank of England to raise interest rates in an unsuccessful bid to prop up the currency. George Soros's Quantum Fund made more than $1 billion betting the pound would fall.
Last Updated: December 8, 2003 09:13 EST |
