Dollar Falls to Record on View Bush Policy Won't Change in 2005
Dec. 23 (Bloomberg) -- The dollar fell to a record against the euro and dropped versus the yen on speculation President George W. Bush's administration won't act to stem the U.S. currency's decline into next year.
The U.S. currency also dropped after a government report showed U.S. durable goods orders, excluding transportation, fell last month. Treasury Secretary John Snow said in a Dec. 3 interview he has ``a deep respect for the way markets perform,'' suggesting he won't accede to European and Asian officials' calls for the U.S. to halt the dollar's slide.
``The U.S. government is happy to see the dollar fall,'' said Shahab Jalinoos, a currency strategist in London at ABN Amro Holding NV. ``The big surge in the euro versus the dollar will continue into next year.'' ABN forecasts the dollar will drop to $1.43 per euro and to 90 yen by the end of next year.
The dollar reached a record $1.3484 per euro and traded at $1.3457 at 8:51 a.m. in New York, from $1.3390 late yesterday, according to electronic currency dealing system EBS. It also fell to 103.93 yen, from 104.23. Moves were exaggerated as major financial markets begin a series of year-end holidays.
The U.S. currency has declined 6.4 percent against the euro and 3.1 percent versus the yen since the year began.
Orders for U.S. durable gods, excluding transportation, fell 0.8 percent last month, against an expected 0.8 percent gain, according to the median forecast in a Bloomberg survey.
``This data did give a little bit of extra momentum for euro- dollar, pushing it through its high,'' said Ian Stannard, a currency strategist in London at BNP Paribas SA. ``This could prove to be the last burst of the year, with euro-dollar finishing the year at $1.35,'' Stannard said.
Longest Since Reagan
The U.S. currency is headed for a third consecutive annual decline, measured by the Federal Reserve's Trade-Weighted Major Currency Dollar Index. The last time it fell for three years in a row was during Ronald Reagan's second term when the Group of Seven negotiated the Plaza Accord in 1985 to weaken the dollar and the Louvre Accord two years later to stem its decline.
``If we remain in a situation without any coordination, we can imagine a catastrophic situation'' for the global economy, French Finance Minister Herve Gaymard told manufacturers during a factory visit in Strasbourg today. ``Our U.S. friends must understand'' that the Group of Seven should discuss coordinated efforts to address the dollar's slide, he said.
H.J. Heinz Co. and Deere & Co. are among U.S. companies to benefit from a weaker currency. Heinz said the dollar's decline boosted revenue from abroad in its second quarter. Deere said the drop swelled sales of farm machinery in the quarter ended Oct. 31. Luca Cordero di Montezemolo, chief executive officer of Fiat SpA, said in a Dec. 9 interview that Italy's exporters are ``very worried'' about the euro's appreciation.
`Deeper Into Year-End'
Japanese markets were closed today and the U.S. has a holiday tomorrow. London's markets are closed Dec. 27 and 28. An average $1.9 trillion is traded daily on the global currency market, according to the Bank for International Settlements.
``We're running deeper into a year-end market,'' said Tetsu Aikawa, a currency sales manager at UFJ Bank Ltd., a unit of Japan's fourth-largest bank by assets. ``As the market loses liquidity, prices can jump around a lot.''
The dollar's slide accelerated after it breached so-called stop loss levels where traders had placed pre-set orders to sell the U.S. currency, said Kamal Sharma, a currency strategist at Dresdner Kleinwort Wasserstein in London. Traders place such orders to limit losses in case their bets go the wrong way.
``Smaller flows may have a more significant impact than in a very liquid market and so you might get some periods of volatility like we've seen with the move through $1.34 in euro- dollar,'' Sharma said.
Merrill's Forecast
Merrill Lynch & Co., the top foreign exchange forecaster in the year ended Sept. 30 in Bloomberg Markets' annual rankings, doesn't expect the dollar to reverse course soon.
New York-based Merrill, the world's biggest securities firm measured by total shareholder equity, predicts the dollar will drop to $1.36 per euro by the end of 2005, said Yianos Kontopoulos, 33, London-based global head of currency strategy. The dollar will fall to 91 yen in the same period, he said.
Federal Reserve Chairman Alan Greenspan said on Nov. 19 that foreigners may tire of financing the record U.S. current account deficit and diversify into other currencies or demand higher U.S. interest rates. The dollar and U.S. Treasury securities fell.
A cheaper currency may help narrow the shortfall, which reached a record $164.7 billion in the third quarter, according to figures released on Dec. 16. Snow said in a speech on Nov. 17 in London that the deficit is a ``shared responsibility'' with other countries, which should boost economic growth.
`Start Selling Again'
``The U.S. is quite happy with the weaker dollar,'' said Callum Henderson, head of currency strategy in Singapore at Standard Chartered Plc. ``That's diminishing investor appetite for U.S. assets. From January, we would expect investors to have another look at dollar fundamentals and start selling again.''
Standard Chartered expects the dollar to fall to 98 yen, a level not seen since 1995, and to a record $1.35 per euro by March 2005, Henderson said.
The euro stayed higher after European Central Bank council member Guy Quaden said the currency's strength this year hasn't been ``too troublesome,'' Belgian magazine Tendances reported. ``The exchange rate has limited the effect of the increase in oil prices,'' he also said in an interview with the magazine.
Japan's Finance Minister Sadakazu Tanigaki on Dec. 7 said he understood Europe's concern about the euro's gain and said ``we must take appropriate action,'' to address rapid moves in the yen.
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