U.S. Dollar Falls As Housing Slump Deepens, Confidence Weakens
U.S. Dollar Falls as Housing Slump Deepens, Confidence Weakens
http://www.bloomberg.com/apps/news?p...WlOEA&refer=us
By Anchalee Worrachate and Kosuke Goto
Dec. 27 (Bloomberg) -- The dollar fell for a fifth day against the euro, its longest losing streak since October, on speculation U.S. reports on consumer confidence and home sales will spur the Federal Reserve to cut interest rates.
The U.S. currency declined against 12 of the 16 most-active currencies and weakened the most against the South African rand and the British pound. Economists forecast consumer confidence fell this month to a two-year low and home sales dropped in November. The Fed has cut its benchmark rate three times to 4.25 percent this year to prevent the worst housing slump in 16 years from tipping the economy into recession.
"We expect the dollar to continue to be undermined in the near-term," said Simon Derrick, London-based chief currency strategist at Bank of New York Mellon Corp. "Headlines out of the U.S. remain mostly negative. House prices continue to fall, and data today is unlikely to change the perception that the U.S. economy is not doing well."
The dollar traded at $1.4514 per euro as of 7:29 a.m. in New York, after falling to $1.4517, the lowest since Dec. 14, from $1.4489 yesterday. The U.S. currency was at 114.61 yen from 114.34. The euro rose to 166.28 yen, from 165.68.
The dollar has dropped 10 percent against the euro in 2007, compared with last year's 10.2 percent loss. The U.S. currency will fall to $1.57 per euro by the end of March next year, Citigroup Inc., the largest U.S. bank, predicts.
South Africa's rand gained 1 percent to 6.892 per dollar. The pound rose 0.4 percent to $1.9916 and 0.3 percent to 72.88 pence against the euro. The U.K. currency fell yesterday to 73.14, the weakest since Europe's single currency was introduced in 1999.
Yuan Appreciation
The yuan climbed the most since China ended a fixed exchange rate to the dollar in 2005 as the government signaled it would allow a faster appreciation of the currency to cool the economy and curb inflation. It strengthened 0.4 percent to 7.3162 per dollar.
The yield premium investors earn on two-year German bunds over similar-maturity Treasuries rose to 74 basis points today from 67 basis points yesterday. Treasury yields fell before a Conference Board report that economists said will show consumer confidence fell to 86.5 this month from 87.3 in November, according to the median estimate in a Bloomberg News economist survey.
Figures tomorrow from the Commerce Department may show new homes sales slowed to an annual rate of 718,000 in November, from October's 728,000, according to a separate survey.
Rate Bets
Interest-rate futures on the Chicago Board of Trade indicate 68 percent odds the Fed will reduce its benchmark rate a quarter- percentage point to 4 percent at its Jan. 30 meeting.
The dollar may end a two-year slide against the euro in 2008 as government-backed funds in Asia and the Middle East purchase U.S. assets, currency strategists say. The currency will gain 3.3 percent to $1.40 per euro, according to the median estimate of 42 strategists surveyed by Bloomberg.
The yen may weaken against higher-yielding currencies on speculation Japanese investors will increase investment overseas to earn bigger returns. Investment trusts are selling more than 500 billion yen ($4.4 billion) of mutual funds today focused on foreign assets, according to data compiled by Bloomberg.
The yen fell to 16.65 against South Africa's rand, from 16.41 yesterday, and weakened to 228.18 per pound, from 226.83 yesterday. The Japanese currency declined for a fifth day against the Turkish lira, to 97.46 from 97.02.
BOJ Rates
The Bank of Japan last week kept its benchmark rate at 0.5 percent and lowered its economic assessment for the first time in three years. Japan's housing starts fell for a fifth month in November, the Land Ministry said in Tokyo today, weakening the case for higher interest rates.
The odds the central bank will lift rates at its next meeting on Jan. 22 were zero percent today, from 5 percent a month ago, based on calculations by Credit Suisse Group using overnight interest-rate swaps.
"With Japan's rates low and the domestic economy sluggish, individual investors found nowhere to put their money other than high-yielding assets abroad," said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $41.5 billion in assets. "Capital outflows will weigh on the yen."
Japan's currency may decline to as low as 117 per dollar in next three months, Sakurai said.
Pound Gains
The pound gained against the dollar and rose from a record low against the euro on speculation a pickup in retail sales before Christmas and an increase in mortgage approvals have reduced pressure on the Bank of England to keep cutting interest rates.
John Lewis Partnership Plc, the U.K.'s largest department store chain, said weekly sales rose to a record as it cut prices to lure last-minute shoppers. Retailers saw a 20 percent increase in customers on Dec. 23, the Financial Times reported, citing retail researcher Footfall.
The British Bankers' Association said today U.K. banks granted 44,881 loans for house purchase in November, compared with 44,321 in October.
Any further gains in the pound may be limited by speculation financial losses linked to the U.S. subprime-mortgage crisis will crimp U.K. economic growth. Bank of England policy makers lowered the benchmark interest rate a quarter-point to 5.5 percent for the first time in two years on Dec. 6 to prevent an economic slowdown.
The average cost of a home dropped the most in three years in December, London-based research group Hometrack Ltd. said Dec. 24. The number of property transactions will fall 17 percent and prices will rise just 1 percent next year, it forecast.
"It will be a horrible year for the pound next year," said Paul Chertkow, London-based head of global currency research at Bank of Tokyo Mitsubishi UFJ Ltd. "The pound will weaken considerably against the euro and the yen."
