Dollar Drops to Record Low on Speculation Europe to Tolerate Gain in Euro
Nov. 5 (Bloomberg) -- The dollar tumbled to a record low against the euro after German Chancellor Gerhard Schroeder suggested he will tolerate a stronger European currency, overshadowing a surge in U.S. job growth in October.
The euro's rise is ``not yet dramatic,'' Schroeder, leader of Europe's largest economy, told a press conference in Brussels. His remark followed European Central Bank President Jean Claude Trichet's failure yesterday to protest a four-week euro advance that helps offset the impact of higher oil prices.
``We were lined up with everyone else to buy euros; we did buy some,'' said David Durrant, chief currency strategist in New York at Bank Julius Baer & Co., which manages $95 billion. European officials may ``allow the euro to appreciate somewhat because of their inflationary concerns,'' he said.
Against the euro, the dollar weakened to $1.2964 at 5 p.m. in New York from $1.2872 late yesterday, according to EBS, an electronic currency-trading system. The dollar fell as low as $1.2972, breaching the Feb. 18 record low of $1.2930. The U.S. currency fell to 105.58 yen, a six-month low, from 106.03 yesterday.
The dollar, down 5 percent in the past month against the euro, initially jumped after the Labor Department said employers added 337,000 workers in October, after a gain of 139,000 a month earlier, fueling bets the Federal Reserve will raise its benchmark interest rate twice more this year.
``If a payrolls like this can't cause the dollar to rally it's the clearest signal that there is something seriously wrong with the dollar,'' said David Bloom, a currency strategist at HSBC Holdings Plc in London.
`Loving This Market'
The dollar has lost 8.3 percent since its high for the year of $1.1761 on April 26, surrendering gains made on expectations the Federal Reserve would raise its benchmark interest rate from a four-decade low. The U.S. currency is also down this year against the yen, British pound, Swiss franc, Brazilian real and the currencies of Australia and New Zealand.
Hedge funds, pension funds and mutual funds are selling dollars, said Michael Klawitter, a currency strategist at WestLB AG in Duesseldorf, Germany.
``A lot of currency hedge funds had a miserable year, and so they're loving this market now,'' he said. ``The euro will be testing $1.30, which the market desperately wants to see.''
The ECB may sell the euro for the first time to stem a rally should it reach $1.35 per dollar, Stephen Jen, head of currency research at Morgan Stanley in London, in a report.
Decline Under Bush
The dollar is weakening as the U.S. current account deficit widens, economists pare forecasts for U.S. economic growth and foreign demand for U.S. assets wanes. The currency has shed 21 percent since President George W. Bush, who won a second term on Nov. 2, took office in 2001.
Slowing purchases by foreigners of U.S. securities fueled speculation the economy won't be able to attract enough capital to compensate for a record current-account deficit and maintain the dollar's value, said Aziz McMahon, a currency strategist at ABN Amro Holding NV in London.
``The dollar's decline is really not a function of relative growth,'' said Michael Rosenberg, senior strategist and managing director in New York at Harbert Management Corp., an investment firm with about $5 billion in assets. ``It's really a function of the current account deficit,'' and strong U.S. growth may actually hurt the dollar by inflating that deficit, he said.
The shortfall in the current account widened to a record $166.2 billion in the second quarter. The gap is equivalent to 5.7 percent of gross domestic product, up from 5.1 percent in the first quarter, meaning the U.S. economy needs to attract about $1.8 billion a day to match it, according to Bloomberg calculations. The current account is a measure of trade, services, tourism and investments.
Schroeder, Trichet
A widening deficit in the current account may cut demand for the dollar, Robert McTeer, president of the Dallas Fed, said in a speech in New York on Oct. 7. San Francisco Fed President Janet Yellen and Kansas City Fed President Thomas Hoenig have also said they're concerned. Currency policy is set by the U.S. Treasury.
The dollar has lost 1.3 percent this week against the euro, and 0.2 percent versus the yen. The U.S. Dollar Index fell below 84 for the first time since December 1995. The index tracks the dollar against a basket of the euro, yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
Schroeder said the rise in the euro isn't yet ``dramatic,'' so ``we don't need to take any political measures.'' He spoke at a press conference after a summit of European Union leaders in Brussels.
Trichet
When asked about the euro's gains at a press conference in Frankfurt yesterday, Trichet referred to a statement by the Group of Seven earlier this year that ``excess volatility and disorderly movements in exchange rates'' are undesirable, stopping short of his January denunciation of ``brutal'' exchange- rate moves.
``In the previous dollar down phase at the start of the year, we swiftly got complaints from European officials,'' said McMahon. ``This time around, there have been no complaints and some arguments that the euro appreciation, in the context of high oil prices, would provide some sort of shield for the economy.''
Speculators including hedge funds boosted futures bets on euro gains to a record, according to data released today from the Washington-based Commodity Futures Trading Commission.
In the week through Nov. 2, speculators boosted so-called euro long positions, which profit from euro gains against the dollar, to 53,465 greater than euro short positions. It was the largest net long stance since the euro's debut in January 1999. Net long yen futures holdings rose to 36,814, the highest since February, according to the CFTC.
To contact the reporter on this story:
Mark Tannenbaum in New York at at mtannen@bloomberg.net.
Nov. 5 (Bloomberg) -- The dollar tumbled to a record low against the euro after German Chancellor Gerhard Schroeder suggested he will tolerate a stronger European currency, overshadowing a surge in U.S. job growth in October.
The euro's rise is ``not yet dramatic,'' Schroeder, leader of Europe's largest economy, told a press conference in Brussels. His remark followed European Central Bank President Jean Claude Trichet's failure yesterday to protest a four-week euro advance that helps offset the impact of higher oil prices.
``We were lined up with everyone else to buy euros; we did buy some,'' said David Durrant, chief currency strategist in New York at Bank Julius Baer & Co., which manages $95 billion. European officials may ``allow the euro to appreciate somewhat because of their inflationary concerns,'' he said.
Against the euro, the dollar weakened to $1.2964 at 5 p.m. in New York from $1.2872 late yesterday, according to EBS, an electronic currency-trading system. The dollar fell as low as $1.2972, breaching the Feb. 18 record low of $1.2930. The U.S. currency fell to 105.58 yen, a six-month low, from 106.03 yesterday.
The dollar, down 5 percent in the past month against the euro, initially jumped after the Labor Department said employers added 337,000 workers in October, after a gain of 139,000 a month earlier, fueling bets the Federal Reserve will raise its benchmark interest rate twice more this year.
``If a payrolls like this can't cause the dollar to rally it's the clearest signal that there is something seriously wrong with the dollar,'' said David Bloom, a currency strategist at HSBC Holdings Plc in London.
`Loving This Market'
The dollar has lost 8.3 percent since its high for the year of $1.1761 on April 26, surrendering gains made on expectations the Federal Reserve would raise its benchmark interest rate from a four-decade low. The U.S. currency is also down this year against the yen, British pound, Swiss franc, Brazilian real and the currencies of Australia and New Zealand.
Hedge funds, pension funds and mutual funds are selling dollars, said Michael Klawitter, a currency strategist at WestLB AG in Duesseldorf, Germany.
``A lot of currency hedge funds had a miserable year, and so they're loving this market now,'' he said. ``The euro will be testing $1.30, which the market desperately wants to see.''
The ECB may sell the euro for the first time to stem a rally should it reach $1.35 per dollar, Stephen Jen, head of currency research at Morgan Stanley in London, in a report.
Decline Under Bush
The dollar is weakening as the U.S. current account deficit widens, economists pare forecasts for U.S. economic growth and foreign demand for U.S. assets wanes. The currency has shed 21 percent since President George W. Bush, who won a second term on Nov. 2, took office in 2001.
Slowing purchases by foreigners of U.S. securities fueled speculation the economy won't be able to attract enough capital to compensate for a record current-account deficit and maintain the dollar's value, said Aziz McMahon, a currency strategist at ABN Amro Holding NV in London.
``The dollar's decline is really not a function of relative growth,'' said Michael Rosenberg, senior strategist and managing director in New York at Harbert Management Corp., an investment firm with about $5 billion in assets. ``It's really a function of the current account deficit,'' and strong U.S. growth may actually hurt the dollar by inflating that deficit, he said.
The shortfall in the current account widened to a record $166.2 billion in the second quarter. The gap is equivalent to 5.7 percent of gross domestic product, up from 5.1 percent in the first quarter, meaning the U.S. economy needs to attract about $1.8 billion a day to match it, according to Bloomberg calculations. The current account is a measure of trade, services, tourism and investments.
Schroeder, Trichet
A widening deficit in the current account may cut demand for the dollar, Robert McTeer, president of the Dallas Fed, said in a speech in New York on Oct. 7. San Francisco Fed President Janet Yellen and Kansas City Fed President Thomas Hoenig have also said they're concerned. Currency policy is set by the U.S. Treasury.
The dollar has lost 1.3 percent this week against the euro, and 0.2 percent versus the yen. The U.S. Dollar Index fell below 84 for the first time since December 1995. The index tracks the dollar against a basket of the euro, yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
Schroeder said the rise in the euro isn't yet ``dramatic,'' so ``we don't need to take any political measures.'' He spoke at a press conference after a summit of European Union leaders in Brussels.
Trichet
When asked about the euro's gains at a press conference in Frankfurt yesterday, Trichet referred to a statement by the Group of Seven earlier this year that ``excess volatility and disorderly movements in exchange rates'' are undesirable, stopping short of his January denunciation of ``brutal'' exchange- rate moves.
``In the previous dollar down phase at the start of the year, we swiftly got complaints from European officials,'' said McMahon. ``This time around, there have been no complaints and some arguments that the euro appreciation, in the context of high oil prices, would provide some sort of shield for the economy.''
Speculators including hedge funds boosted futures bets on euro gains to a record, according to data released today from the Washington-based Commodity Futures Trading Commission.
In the week through Nov. 2, speculators boosted so-called euro long positions, which profit from euro gains against the dollar, to 53,465 greater than euro short positions. It was the largest net long stance since the euro's debut in January 1999. Net long yen futures holdings rose to 36,814, the highest since February, according to the CFTC.
To contact the reporter on this story:
Mark Tannenbaum in New York at at mtannen@bloomberg.net.
No comments:
Post a Comment