Nice while it lasted...
Dollar Falls on Speculation Housing Slump to Swell Bank Losses
By Stanley White and Kosuke Goto
March 19 (Bloomberg) -- The dollar declined the most in a week against the euro, losing much of yesterday's gains, on speculation a housing slump will widen credit-market losses.
The currency weakened against the Japanese yen and the Swiss franc after Bank of America Corp. predicted the Federal Reserve will lower its benchmark by another 75 basis points this year following a reduction to 2.25 percent yesterday. Reports this week on U.S. mortgage demand and manufacturing will probably show the economy is slowing.
``For financial firms and the U.S. economy, the worst is not over,'' said Tetsuhisa Hayashi, chief currency manager of foreign-exchange trading in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's largest publicly traded lender. ``Japanese investors think now is a good opportunity to sell the dollar, taking advantage of its big rally yesterday.''
The U.S. currency fell to $1.5711 per euro at 2:34 p.m. in Tokyo from $1.5625 yesterday, when it advanced 0.7 percent, the biggest gain since Feb. 7. The dollar declined to 98.89 yen from 99.85 yesterday, when it surged by 2.6 percent, the biggest gain since January 1999. The yen traded at 155.41 per euro compared with 155.95 yesterday. The dollar may fall to 92 yen and $1.60 a euro in one month, Hayashi said.
The dollar declined to 0.9944 Swiss franc from 1.0024. The Swiss franc is favored in times of crisis and climbed almost 3 percent in a day after the Sept. 11, 2001, terrorist attacks. It has gained 14 percent this year. The U.S. currency fell 0.4 percent to 93.09 U.S. cents per Australian dollar and slumped 0.6 percent against the New Zealand dollar to 81.17 cents.
The yuan rose 0.2 percent to 7.0667 per dollar on speculation China's central bank is stepping up the pace of currency appreciation to curb inflation.
Forecast Change
Bank of America, the second-largest U.S. bank, cut its forecast for the U.S. currency to 96 yen by June 30 from 98 yen previously, because of the slowing economy. The Fed will cut the target for the overnight lending rate between banks to 1.5 percent this year, while the Bank of Japan is unlikely to lower rates, said Tomoko Fujii, head of economics and strategy for Japan in Tokyo, confirming the report issued today.
Futures on the Chicago Board of Trade indicate a 50 percent chance the central bank will cut its rate by another half point by its June meeting. The odds of a quarter-point cut in April were 38 percent. Global banks are reeling from $195 billion in losses on their debt holdings following the collapse of the subprime mortgage market, according to Bloomberg data.
``Japanese investors are also losing risk appetite to send money abroad, buffeted by stock-market declines,'' Fujii said.
Dollar sales by Japanese individual investors on the Tokyo Financial Exchange Inc. rose to a record high on speculation the U.S. economy will suffer a recession.
Dollar Sales
Short positions on the dollar against the yen, wagers the U.S. currency will fall, reached 27,806 contracts yesterday, the most since July 2006, when Japan's largest financial futures market started collecting data. The exchange's share of so-called margin trading, borrowing money to buy and sell currencies, was 8.6 percent in 2007 based on figures from the Financial Futures Association of Japan.
Joseph Stiglitz, a Nobel-prize winning economist, said the U.S. economy is facing the worst financial crisis in almost 80 years and interest-rate cuts will do little to cure the problem.
A Commerce Department report yesterday showed building permits fell to a 16-year low in February. The Mortgage Bankers Association will report applications to buy a home or refinance a loan later today. The Fed Bank of Philadelphia's manufacturing index, due tomorrow, will be minus 18 for March, signaling a fourth month of contraction, according to a Bloomberg News survey.
Mortgage Burden
``More and more Americans are going to walk away from their mortgages, and that's going to undermine the foundations of these banking institutions,'' Stiglitz, a professor at Columbia University, told Radio New Zealand today from Auckland.
Morgan Stanley, the second-biggest U.S. securities firm by market value, will report a 57 percent drop in first quarter earnings today due to a decline in fees for advisory work and underwriting, according to a Bloomberg survey.
Morgan Stanley will likely join Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. in reassuring investors it has ample cash reserves. Morgan Stanley reported last quarter the first loss in its history and $9.4 billion in writedowns of subprime mortgage-related assets.
``Should their earnings fall short of analysts' estimates, this may again trigger stock market declines and the yen appreciation,'' Tohru Sasaki and Junya Tanase, currency strategists in Tokyo at JPMorgan Chase & Co., the third-largest U.S. bank, wrote in a research note today.
The Australian dollar may advance to 100 yen as it stayed above the 200-week moving average, at 88.58 yen today, said analysts at Citigroup Global Markets Inc., citing charts that predict price movements.
``This is very similar to what happened in August 2007 after which it went back to the trend high,'' analysts led by New York- based global head of currency strategy Tom Fitzpatrick, wrote in a research note yesterday. |
