BLBG: Dollar Falls as Prospects for Rate View Weakens, Exporters Sell
By Yasuhiko Seki
Dec. 24 (Bloomberg) -- The dollar fell against the yen, extending a downturn from its strongest level in eight weeks, on speculation the Federal Reserve won’t seek an early exit from stimulus measures.
The greenback dropped for a second day against Japan’s currency as an unexpected slide in new home sales and a report forecast to show a decline in business activity underscored the fragility of the U.S. recovery. The yen also strengthened on prospects Japanese exporters are bringing home earnings.
“The market has gone too fast and too far pricing in prospects for an increase in U.S. rates,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., a unit of France’s third-largest bank. “The dollar may succumb to selling pressure as the excessive optimism about interest rates in the U.S. weakens.”
The dollar was at 91.45 yen as of 1:55 p.m. in Tokyo from 91.64 yen yesterday in New York. The greenback traded at intraday highs of 91.87 yen in the past two days, the strongest since Oct. 27. The dollar traded at $1.4336 per euro from $1.4337 yesterday in New York. It rose to $1.4218 on Dec. 22, the strongest level since Sept. 4. The euro declined to 131.10 yen from 131.38 yen in New York.
The dollar had rallied more than 5 percent versus the euro this month and traded within a quarter-cent of its 200- day moving average of $1.4198 before yesterday’s decline. The dollar is down 2.5 percent for 2009.
Housing Decline
U.S. new home sales fell 11 percent in November to an annual pace of 355,000 from a revised 400,000, the Commerce Department said yesterday. Economists had forecast an increase.
The Institute for Supply Management-Chicago Inc. will on Dec. 30 report its barometer of U.S. business activity fell to 55.1 in December from 56.1 the previous month, according to a Bloomberg News survey of economists. Readings above 50 signal expansion.
“The big picture hasn’t changed, and the Federal Reserve has been pretty clear about its intentions to keep rates low, so we expect the dollar to come under pressure again,” said Simon Derrick, London-based chief currency strategist at Bank of New York Mellon Corp., the world’s largest assets custodian.
Dollar Reserves
Futures trading in Chicago indicated a 48 percent chance policy makers will increase the zero to 0.25 percent target rate for overnight lending between banks by at least a quarter-percentage point by the June meeting, down from a 52 percent likelihood a week ago.
The U.S. dollar’s gains may end in the middle of 2010 as central banks shy away from adding greenbacks to their reserves and the Federal Reserve raises rates at a slower pace than investors expect, Barclays Plc said in a note to clients.
“We see the dollar strengthening in the first six to nine months of 2010 when the focus is on liquidity withdrawal and tightening of rates,” said Steven Englander, chief U.S. currency strategist at Barclays in New York, in a telephone interview. “Once the market gets past this initial fear of tightening, the reality will be that the Fed isn’t going to be tightening very fast and we’ll see dollar-selling again.”
Exporters
The yen extended a rebound, after yesterday snapping the longest losing streak since January 2007, as Japan’s exporters rushed to buy the currency ahead of the coming New Year break.
“The yen reached targeted levels for most exporters, luring them to buy the currency in a hurry before they go on New Year break,” said Takashi Kudo, general manager of market information service in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.
Large Japanese manufacturers expected the yen to average 91.16 per dollar in the six months to March 2010, according to the Bank of Japan’s quarterly Tankan survey.
The yen’s gains were limited amid speculation deflation will force the Bank of Japan to keep rates near zero for longer than the U.S.
“The BOJ is running far behind other central banks in an exit race from stimulus, given stubborn deflation,” said Yousuke Hosokawa, a senior currency dealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest bank. “This view gives a strong impetus to sell the yen.”
Japanese consumer prices excluding fresh food fell 1.7 percent from a year earlier in November, according to the median estimate of economists in a Bloomberg News survey before the releases of the data tomorrow.
To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.
