- (Bloomberg) -- The dollar fell to a record low against
the euro and the Swiss franc on speculation a U.S. government report will
show a deepening property slump, prompting the Federal Reserve to lower
interest rates.
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- A report today may show U.S. housing starts slipped to
a 14- year low in October, prompting traders to raise bets the Federal
Reserve will cut interest rates by December. The dollar also slid on speculation
a group of six Arab nations will change their fixed exchange rates to the
U.S. currency. The yen fell versus all 16 of the major currencies as global
stocks rose.
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- ``The dollar right now is the `persona non-grata' of
the currency world,'' said Boris Schlossberg, senior currency strategist
at DailyFX.com in New York.
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- The dollar weakened to $1.4778 per euro as of 7:55 a.m.
in New York from $1.4665 late yesterday. It touched $1.4797, the lowest
since the 13-nation currency was started in 1999. It rose to 110.39 yen
from 109.76 yen, and fell to a record low of 1.1070 versus the franc from
1.1152 yesterday.
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- The yen fell as European and Asian stocks gained, giving
traders confidence to buy higher-yielding assets funded by selling the
Japanese currency. The currency slid 2.3 percent against the Norwegian
krone as investors returned to so-called carry trades.
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- `Calming Down'
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- ``Stock markets are calming down,'' said Kenichi Yumoto,
senior dealer in Tokyo at Societe Generale SA, France's third- biggest
lender. ``Increased risk appetite is pushing down the yen,'' which may
move between 109.30 and 110.30 per dollar today, Yumoto forecast.
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- In carry trades, investors get funds in a country with
low borrowing costs and invest in one with higher interest rates, earning
the spread between the borrowing and lending rate. The risk is that currency
moves erase those profits.
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- The dollar's exchange rate with the yen has had a correlation
of 0.95 with the Nikkei 225 Stock Average in the past month. The Nikkei
rose 1.1 percent. A reading of 1 would mean the dollar and the index moved
in lockstep.
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- The Morgan Stanley Capital International Asia Pacific
Index added 0.3 percent to 158.05, rallying from an earlier decline of
as much as 2.6 percent.
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- The Japanese currency fell 1.5 percent to 83.98 versus
the New Zealand dollar from 82.74. It also declined to 98.16 per Australia's
dollar, from 97.04.
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- The U.S. currency has lost 12 percent against the euro
and 8.1 percent versus the yen this year as the Fed cut rates twice to
help revive economic growth amid the worst housing market slump in 16 years,
and as companies reported losses on securities tied to U.S. subprime mortgages.
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- `More Bad News'
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- ``Credit and housing difficulties are continuing to rumble
on,'' said Adam Cole, senior currency strategist at RBC Capital Markets
Ltd. in London. ``There's more bad news in the pipeline, raising speculation
the Fed is going to cut rates again.''
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- Cole forecasts the euro will fall to $1.45 and the yen
will decline to 115 against the dollar by year-end.
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- The Fed may cut rates again this year, futures traded
on the Chicago Board of Trade show. Speculation also increased that the
U.S. central bank could lower borrowing costs in an emergency meeting or
``employ some liquidity enhancing measure,'' said Neil Jones, head of European
hedge-fund sales in London at Mizuho Capital Markets.
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- The odds of the Fed cutting rates a quarter-percentage
point to 4.25 percent on Dec. 11 are 96 percent, up from 72 percent a month
ago.
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- `Second-Round'
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- The European Central Bank has held interest rates at
a six- year high to keep inflation within the bank's target range. ECB
official Yves Mersch said a ``second-round'' effect from the current acceleration
in prices would probably prompt an increase in rates.
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- German producer-price inflation, an early indicator of
price pressures in Europe's biggest economy, accelerated more than economists
expected in October, the Federal Statistics Office reported.
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- The yield premium investors earn on two-year German bunds
over similar-maturity U.S. Treasuries widened to 55 basis points yesterday,
the most since April 2004.
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- ECB policy maker Guy Quaden said the U.S. currency's
drop was ``normal,'' a Belgian newspaper reported today, bolstering the
common currency's gains on bets European Union officials won't intervene
to slow the euro's appreciation.
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- Dollar `Overvalued'
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- ``The weakness of the dollar, which must not become excessive,
is in part normal given the economic slowdown in the United States,'' the
Metro newspaper cited Quaden as saying.
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- Quaden's remarks added to comments from the IMF today
that the dollar is ``overvalued.'' John Lipsky, the first deputy managing
director of the International Monetary Fund, said today the U.S. currency
was still on the ``strong side.''
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- The six member countries of the Gulf Cooperation Council,
that includes Saudi Arabia and the United Arab Emirates, will discuss a
proposal next month to revalue their currencies, Secretary General Abdul
Rahman al-Attiyah said on the weekend.
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- ``If there's a change in foreign exchange regimes in
the Middle East, that could be beneficial for euros and negative for the
dollar,'' said Jeremy Stretch, a senior market strategist at Rabobank Groep
in London. ``It's a catalyst for a sharp tick upward in the euro.''
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- United Arab Emirates central bank Governor Sultan Bin
Nasser al-Suwaidi last week said his bank has a target of moving 10 percent
of its currency reserves into euros and has ``already diversified to some
extent.'' The $50 billion Qatar Investment Authority said Sept. 4 it was
looking to buy assets in Asia to counter a weak dollar.
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- Saudi central bank Governor Hamad Saud al-Sayari said
in an interview at the weekend that his Gulf counterparts agreed not to
change their exchange-rate policies after discussing revaluation a few
weeks ago.
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- The Saudi Arabian riyal fell 0.1 percent to 3.7300 per
dollar before a meeting of GCC heads of state in Doha, Qatar, on Dec. 3-4
that will discuss the pegs.
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- To contact the reporter on this story: Kim-Mai Cutler
in London at kcutler@bloomberg.net Kosuke Goto in Tokyo at kgoto2@bloomberg.net
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- http://www.bloomberg.com/apps/news?pid=2060
1087&sid=apRHSz06RuoM&refer=worldwide
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