The dollar fell to a record low against the euro and declined versus
the yen on speculation reports on housing and consumer confidence will
add to pressure on the U.S. Federal Reserve to cut interest rates.
The U.S. dollar weakened against 12 of the 16 most-active currencies
before data tomorrow that will show the lowest existing home sales in
five years and the weakest household confidence in more than a year,
according to separate Bloomberg News surveys. The currency slid for a
third day against both the British pound and the Canadian dollar.
``The dollar has established significant downside momentum,'' said Ray
Attrill, director of foreign exchange research at Forecast Ltd. in
Sydney. ``Expectations for more Fed easing are reasonably grounded by
expectations for further evidence of housing market weakness.''
The dollar fell to $1.4130 against the euro at 7:02 a.m. in London
from $1.4091 late in New York on Sept. 21. It traded at 115.03 yen
from 115.50 last week. Against the pound, the dollar reached $2.0300,
the lowest since Sept. 13, from $2.0203. It may fall to $1.42 against
the euro this week, Attrill said.
Trading may be less than usual as Japanese markets are closed for the
Autumnal Equinox holiday. Against the Canadian dollar, the U.S.
currency fell to $1.0027 from $0.9992 on Sept. 21, when it declined to
a 31-year low of $1.0064.
Housing Decline
The dollar also slid against Asian currencies on speculation the
region's central banks will keep rates on hold as the Fed lowers
borrowing costs. U.S. home resales fell 4.5 percent to an annual rate
of 5.49 million, according to a survey of economists before the
National Association of Realtors report. The Conference Board index of
consumer confidence dropped to 104.4 this month from 105 in August, a
separate survey showed.
The Malaysian ringgit rose to an eight-week high of 3.4331 against the
dollar. The Philippine peso reached a six-week high of 45.16 and the
Indonesian rupiah advanced to a two-month peak of 9,132.
Since the Fed cut the target for overnight lending between banks by 50
basis points on Sept. 18, traders have pushed the yield on Treasury
two-year notes to almost three quarters of a point below the 4.75
percent benchmark rate.
In the three previous occasions during the past 20 years when that has
happened, policy makers have cut borrowing costs. The Fed next meets
Oct. 30-31.
Futures traders increased their bets that the euro will gain against
the U.S. dollar, according to data from the Washington-based Commodity
Futures Trading Commission.
Futures Bets
The difference in the number of wagers by hedge funds and other large
speculators on an advance in the euro compared with those on a drop --
so-called net longs -- was 86,049 on Sep. 18, compared with net longs
of 58,214 a week earlier.
Gains in the yen may be limited by speculation Yasuo Fukuda, the new
leader of Japan's ruling Liberal Democratic Party, will struggle to
pass laws after his likely confirmation as prime minister tomorrow.
The currency may fall against the euro on prospects Fukuda will slow
structural reforms to woo voters.
Outgoing Prime Minister Shinzo Abe's resignation followed the ruling
coalition's loss of control of the upper house after a pension fund
scandal. Signs of a political deadlock may trim bets for a Bank of
Japan interest-rate increase.
New Prime Minister
``Some in the market expect there will be lessened focus on structural
reforms, which could lead to stock weakness,'' said Dai Sato, manager
of the Singapore treasury department at Mizuho Corporate Bank Ltd.
``The BOJ isn't in an environment where it may be able to raise rates.
The yen is unlikely to strengthen.''
The yen traded at 162.25 against the euro from 162.64. It may decline
to 163.00 per euro today, Sato said.
The odds of the Bank of Japan raising rates next month from 0.5
percent were unchanged at 9 percent, based on calculations by Credit
Suisse Group using overnight interest-rate swaps.
Futures traders reversed bets that the yen will gain against the U.S.
dollar. Yen net shorts against the dollar stood at 21,067 on Sep. 18,
compared with net longs of 5,585 a week earlier, according to CFTC
data.
Gains in the euro were limited as European Central Bank board member
Christian Noyer reiterated the Group of Seven's statement that excess
currency volatility is ``undesirable.''
``Any abrupt change in the dollar value could seriously hamper global
economic growth,'' he said at a conference in Hong Kong today.
The euro's appreciation hurts exports by making them more expensive
overseas, the German Finance Ministry said Sept. 20 in its monthly
report.
``There's a good chance that complaints from Europe will pick up and
that those complaints will carry more weight,'' said Thomas Harr,
senior foreign exchange strategist at Standard Chartered Plc in
Singapore. ``This could cap the upside'' for the euro, which may fall
to $1.40 by the year-end, he said.
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