Dollar stays near record low

Mark Tannenbaum and Rodrigo Davies

Monday, Nov. 22, 2004 | 9:26 a.m.

The dollar traded within a half-cent of a record low against the euro as finance ministers and central bank governors from the Group of 20 largest economies failed to protest the pace of the U.S. currency's slide.

The G-20 in a joint statement in Berlin Sunday refrained from including a reference to the dollar's drop. The currency fell to a record low against the euro and to the weakest in 4 1/2 years versus the yen last week. The yen's advance "was too rapid," Japanese Vice Finance Minister Hiroshi Watanabe told reporters in Berlin Saturday.

"The dollar story is truly a policy-making event, and until policy makers stand up and say 'that's too much,' my inclination is the dollar will continue to fall," said James McCormick, head of currency strategy at Lehman Brothers Holdings Inc. in London.

Against the euro, the dollar traded at $1.3038 at 10:28 a.m. in New York from $1.3022 at the end of last week, according to EBS, an electronic currency-dealing system. The U.S. currency fell to a record $1.3074 on Nov. 18, and has lost 31 percent since the start of 2002. The dollar was little changed at 103.20 yen today from 103.10. It touched 102.70 on Nov. 19, the weakest since March 31, 2000.

The dollar may drop to 90 yen and to $1.40 per euro next year, said McCormick. Lehman was the most accurate currency forecaster in the third quarter, according to a Bloomberg survey. The U.S. currency may reach 85 yen in 2006, he said. The dollar's record low is about 80 yen, reached in 1995.

"The dollar still has room on the downside," said Andreas Mann, senior currency trader in New York at Commerzbank Securities, a unit of Germany's fourth-biggest bank. Currency traders want central banks to "show us the money" by buying dollars, he said.

Watanabe's comments indicate the government may sell yen as soon as today, said Neil Jones, a director of foreign exchange at BNP Paribas SA in London.

"We are looking for them to intervene but not before" about 101 yen per dollar, said Samarjit Shankar, director of global strategy for the foreign-exchange group in Boston at Mellon Financial Corp., which manages $625 billion. "It's just a question of them pacing the decline in the dollar."

Currency traders, investors and strategists are more bearish on the dollar than at any time in the past 18 months, a Bloomberg News survey last week showed.

Seventy percent of the 54 strategists, investors and traders polled on Nov. 19 from Tokyo to New York advised selling the U.S. currency against the euro, the most since May 2003. Two-thirds advised selling it against the yen.

Futures traders on a net basis held the highest number of wagers on the yen to advance against the dollar since February, data from the Washington-based Commodity Futures Trading Commission showed on Nov. 19. The figures were for the week through Nov. 16.

The record U.S. current-account deficit is undermining the dollar, said Mark Snyder, head of foreign exchange and money markets at State Street Corp., in an interview in Hong Kong. The shortfall in the current account, the broadest measure of trade, was $166.2 billion in the second quarter. A wider deficit means more dollars must be converted to other currencies to pay for imports.

"I won't be alone in anticipating the weaker dollar across the board," said Snyder, who is also chairman of the Federal Reserve Bank of New York's Foreign Exchange Committee. Snyder forecasts the dollar to drop to $1.35 to $1.40 per euro by the end of 2005 and to 90 yen to 95 yen in the same period.

Japanese exporters will be hurt should the yen stay above 105 per dollar, said Hiroshi Okuda, head of the Japan Business Federation, at a press conference in Tokyo today.

Most major Japanese exporters assumed the yen would be weaker than 105 when they estimated earnings for the second half of the business year, said Okuda, who is also chairman of Toyota Motor Corp., the world's second-largest automaker. The fiscal second half began Oct. 1.

Two German officials, who declined to be named, said the U.S. rejected calls to denounce "volatile" foreign-exchange moves in the G-20 statement.

"The U.S. probably doesn't want to do anything about the dollar's slide," said Shimpei Uike, who invests in overseas debt at Asahi Life Asset Management in Tokyo. "It doesn't look like anything is coming to the dollar's rescue." The dollar may drop to $1.32 per euro and 101.50 yen in two weeks, Uike said.

The U.S. currency tumbled on Nov. 19 after Fed Chairman Alan Greenspan said overseas investors may tire of financing the U.S. current-account gap and diversify into assets denominated in other currencies. "A diminished appetite for adding to dollar balances must occur at some point," he said at the European Banking Congress in Frankfurt.

President Bush said Sunday "my government has a strong dollar policy," following a meeting of leaders from the Asia Pacific Economic Cooperation forum in Santiago, Chile.