- NEW YORK - The US
dollar may drop by as much as 15 per cent against major currencies in the
next two years, extending a four-month slide as demand for United States
assets wanes, according to JP Morgan Chase.
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- Foreigners may hesitate to invest in the US on concern
that there may be more terrorist attacks there, said Ms Rebecca Patterson,
a currency strategist at JP Morgan, the fifth-biggest foreign exchange
trader.
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- She said expectations of a sluggish economic recovery
and reduced confidence in corporate accounting will cut demand for US stocks
and bonds.
-
- The dollar's slide since February is 'the real deal',
she said. 'You're not going to have enough capital flows to offset' the
deficit in the current account, the broadest measure of a country's trade.
-
- The dollar fell to a 16-month low against the euro and
a six-month low against the yen last week on speculation that a rebound
in the world's biggest economy is losing steam, prompting foreigners to
shun US stocks.
-
- The currency rose to 93.52 US cents per euro in London
trading yesterday from 93.82 late on Wednesday and to 124.92 yen from 124.57,
on expectations that employment reports due today will ease concern that
growth is slowing in the US.
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- JP Morgan's forecasting models show that 'fair value'
for the dollar is US$1 to US$1.05 per euro and 105 to 110 yen.
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- The dollar may take longer than two years to reach that
fair value level against the yen as Japan has been selling its currency
to slow its rally, said Ms Patterson. 'The yen will keep strengthening
but it will be a gradual move.'
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- The US current account shortfall was US$417 billion (S$750.6
billion), the equivalent of 4.1 per cent of gross domestic product (GDP)
last year. JP Morgan expects the deficit to widen to a record US$492 billion
this year, or 4.6 per cent of GDP, and balloon to 4.9 per cent next year.
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- In one example of waning demand for US assets, foreigners'
net purchases of US bonds in the first quarter were 30 per cent less than
the same period last year, said JP Morgan. -- Bloomberg News
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