BLBG: Dollar Falls as Fed Seen Keeping Stimulus in Place for Longer
By Anchalee Worrachate and Yasuhiko Seki
Dec. 24 (Bloomberg) -- The dollar fell against the yen and extended a decline from its strongest level in eight weeks versus the euro on speculation the Federal Reserve will keep measures in place to revive the world’s biggest economy.
The U.S. currency weakened for a second day against the yen as an unexpected drop in new home sales yesterday and a report forecast to show a slide in business activity underscored the fragility of the U.S. recovery. The yen rose against all but three of the 16 most-traded currencies tracked by Bloomberg on speculation Japanese exporters were taking advantage of this month’s declines to bring home foreign earnings. “Some people in the market are starting to question if the Fed will be able to raise interest rates any time soon,” said Geoffrey Yu, a currency strategist at in London at UBS AG. “The housing market is still weak.”
“The market has gone too fast and too far pricing in the 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 fell to 91.21 yen as of 9:35 a.m. in London from 91.64 yen yesterday in New York, after trading as high as 91.87 yen in the past two days, the strongest level since Oct. 27. The U.S. currency also weakened to $1.4384 per euro, from $1.4337 yesterday. It rose to $1.4218 on Dec. 22, its strongest since Sept. 4. The euro fell to 131.15 yen, from 131.38 yen.
Euro’s Worst December
The dollar has rallied 4.3 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. For 2009, the dollar is down 2.9 percent versus the European currency. This month’s gains have put the euro on course for its worst December since the single currency’s inception 10 years, with a 4.3 percent drop.
Fed Bank of St. Louis President James Bullard said he sees interest rates remaining near zero in 2010 as the central banks seeks to keep the recovery on track, the Wall Street Journal reported yesterday.
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 report on Dec. 30 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.
Fed ‘Pretty Clear’
“The big picture hasn’t changed, and the Fed 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 BNY Mellon Corp., the world’s largest custodian of assets.
Futures trading in Chicago indicated a 48 percent chance policy makers will increase its target interest rate from the current range of zero to 0.25 percent by at least a quarter- percentage point by the June meeting. The odds were 52 percent a week ago.
The yen climbed for a second day against the dollar as Japan’s exporters bought the currency before the end-of-year holidays. The yen has dropped against all 16 most-traded currencies this month, weakening 5.3 percent versus the dollar.
‘Luring’ Exporters
“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 expect 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 interest rates near zero for longer than the Fed.
“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 release of the data tomorrow.
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
