Dollar Trades Near Record Low Versus Euro; Asset Purchases Drop
19/11/2003 12:06
The dollar traded near a record low against the euro in Asia after net foreign purchases of U.S. securities slumped to the least in five years.
A drop in the amount of securities bought by international investors makes it harder for the U.S. to finance its current- account deficit, the broadest measure of trade and investment. The dollar also declined after the U.S., which has a record trade deficit with China, said it will limit some Chinese imports.
``This goes back to the question of how can the U.S. fund its fiscal and current account deficits,'' said Bryan Smith, head of U.S. currency trading in San Francisco at Barclays Global Investors, which has about $897 billion under management. ``The Treasury report shows it's not going very well. The dollar's got more room to move down.''
Against the euro, the U.S. currency was at $1.1947 at 12:51 p.m. in Tokyo, from $1.1973 late in New York yesterday. Earlier in Asian trading, the dollar fell to record $1.1978. The yen also fell as the Nikkei 225 Stock Average declined, while gold rose above $400 an ounce for the first time in more than seven years.
The dollar's previous record low versus the euro was $1.1933 on May 27. The five-year-old currency shared by a dozen European Union nations has gained 14 percent against the dollar this year. The dollar may drop to $1.23 per euro by year's end, Smith said.
The dollar weakened against all 15 of the most actively traded Asian currencies, including the South Korean won, the Singapore dollar and the dollars of Australia and New Zealand.
Asian stocks slumped on concern the weaker dollar will reduce revenue from exports. Japan's Nikkei 225 fell 2.5 percent as of 1:01 p.m. in Tokyo, eroding demand for Japanese yen.
Citigroup, UBS
The Treasury Department said Tuesday foreigners bought a net $4.19 billion in September, down from $49.9 billion in August and the smallest since $1.17 billion in September 1998.
Citigroup Inc., which had predicted the dollar would climb to $1.05 per euro by the end of November, recommended clients close trading positions that would profit from a rising dollar.
Citigroup is the second largest trader in the daily $1.2 trillion currency market, according to Euromoney magazine. UBS AG, the largest trader, forecast the dollar will trade at $1.18 per euro by the end of the year and fall to $1.32 in 12 months.
``After such a severe move, we might see a slight rebound in the dollar in the next couple of days,'' said Daniel Katzive, a currency strategist at UBS in Stamford, Connecticut. ``But we believe the currency will continue its slide.''
China Trade
The Bush administration said it intends to limit imports of some textiles and apparel from China to stem a record flow of goods from that nation and protect mills in states such as North Carolina. U.S. textile and apparel companies such as Milliken & Co. had said rising imports from China threaten to put U.S. and Caribbean manufacturers.
``We are going to see an escalation of rhetoric about trade,'' Robert E. Rubin, former U.S. Treasury Secretary and now an executive at Citigroup, said after a speech to the Council on Foreign Relations in New York. ``There's more of a threat about this than I thought three months ago. Protectionsim would be very damaging to us.''
Some U.S. companies and lawmakers blame China's currency policy -- which pegs the yuan at about 8.3 to the dollar -- for the increasing U.S. trade deficit and some of the 2.5 million manufacturing job losses during President George W. Bush's tenure. Traders have said the Bush administration has endorsed a weaker dollar as a way to boost exports and keep the economy growing.
``Any move toward protectionist policies throws sand into the wheels of global growth,'' said Peter Clay, a currency strategist in Sydney at ABN Amro Holding NV. ``That creates massive damage for U.S. markets and the U.S. dollar.''
Yen's Advance
The U.S. Dollar Index, which measures the dollar against a basket of six major currencies, fell to 90.22 from 90.23. The index is down more than 11 percent this year. In addition to its slide versus the euro, the dollar has lost 9 percent compared with the yen.
The yen weakened in Asian trading today as the Nikkei 225 Stock Average declined for the third day in four, trimming its gains for the year to 13 percent. Overseas investors have been net buyers for 28 of the past 30 weeks.
Japan has responded to the yen's advance this year by selling its currency and buying dollars. The European Central Bank hasn't sold euros since 2000. In September that year, the G- 7 bought euros, in addition to the ECB's own purchases.
Jean-Claude Trichet, who became president of the European Central Bank this month, suggested he's not concerned with the euro's level. ``When we have a policy of a strong and stable euro, which we are pursuing, we are paving the way in the medium and long run for medium- and long-term rates that are at a lower level,'' Trichet said on Nov. 6.
The Bank of Japan has sold a record 16.2 trillion ($149.8 billion) this year through October to stem the yen's 8.9 percent gain. ``Japan is going to be in the market between 107 and 108 yen or so,'' Barclays Global's Smith said.
Impact on Companies
For some U.S. companies, the dollar's drop is a welcomed event. United Parcel Service Inc., the world's largest package- delivery company, yesterday said that currency-related gains boosted its revenue by $79 million in the third-quarter and its profit by $18 million compared with the year-ago period.
McDonald's Corp., the world's largest restaurant chain, said the slide accounted for 4 percentage points of the 11 percent sales gain in the third quarter.
European Exports
In Europe, PSA Peugeot Citroen, Nokia Oyj and Royal Philips Electronics NV are among companies that have said the euro's appreciation is hurting business.
Peugeot, Europe's second-largest automaker, cut its full- year profit forecast last month, partly because of a stronger currency. Nokia said earlier this month that quarterly sales may decline for the same reason. Philips blamed the euro's rise for operating losses in most of its businesses last quarter.
``If this situation drags on it could wipe out any traces of a recovery,'' said Giancarlo Losma, chief executive officer of Losma SpA, an Italian maker of air filters for car makers such as Fiat SpA and Renault SA. ``We can only sit and watch and hope it goes away.'' He spoke in a telephone interview from Rome.
The dollar's decline also comes amid speculation fighting in Iraq may intensify, spurring terrorist attacks against the U.S. and its coalition allies. Two U.S. soldiers were killed in Iraq on Monday, a day after a report that al-Qaeda may strike Britain, Italy and Japan. The dollar is down 6 percent against the euro since Bush's May 1 announcement that major military operations in Iraq were over.
An audiotape broadcast Monday on Dubai's Al-Arabiya television containing a message purportedly from Saddam Hussein said U.S.-led forces in Iraq had reached a ``dead end,'' and called for a holy war against the occupation. The U.S. Central Intelligence Agency said it is unable to confirm whether the tape was of the ousted Iraqi leader.
A drop in the amount of securities bought by international investors makes it harder for the U.S. to finance its current- account deficit, the broadest measure of trade and investment. The dollar also declined after the U.S., which has a record trade deficit with China, said it will limit some Chinese imports.
``This goes back to the question of how can the U.S. fund its fiscal and current account deficits,'' said Bryan Smith, head of U.S. currency trading in San Francisco at Barclays Global Investors, which has about $897 billion under management. ``The Treasury report shows it's not going very well. The dollar's got more room to move down.''
Against the euro, the U.S. currency was at $1.1947 at 12:51 p.m. in Tokyo, from $1.1973 late in New York yesterday. Earlier in Asian trading, the dollar fell to record $1.1978. The yen also fell as the Nikkei 225 Stock Average declined, while gold rose above $400 an ounce for the first time in more than seven years.
The dollar's previous record low versus the euro was $1.1933 on May 27. The five-year-old currency shared by a dozen European Union nations has gained 14 percent against the dollar this year. The dollar may drop to $1.23 per euro by year's end, Smith said.
The dollar weakened against all 15 of the most actively traded Asian currencies, including the South Korean won, the Singapore dollar and the dollars of Australia and New Zealand.
Asian stocks slumped on concern the weaker dollar will reduce revenue from exports. Japan's Nikkei 225 fell 2.5 percent as of 1:01 p.m. in Tokyo, eroding demand for Japanese yen.
Citigroup, UBS
The Treasury Department said Tuesday foreigners bought a net $4.19 billion in September, down from $49.9 billion in August and the smallest since $1.17 billion in September 1998.
Citigroup Inc., which had predicted the dollar would climb to $1.05 per euro by the end of November, recommended clients close trading positions that would profit from a rising dollar.
Citigroup is the second largest trader in the daily $1.2 trillion currency market, according to Euromoney magazine. UBS AG, the largest trader, forecast the dollar will trade at $1.18 per euro by the end of the year and fall to $1.32 in 12 months.
``After such a severe move, we might see a slight rebound in the dollar in the next couple of days,'' said Daniel Katzive, a currency strategist at UBS in Stamford, Connecticut. ``But we believe the currency will continue its slide.''
China Trade
The Bush administration said it intends to limit imports of some textiles and apparel from China to stem a record flow of goods from that nation and protect mills in states such as North Carolina. U.S. textile and apparel companies such as Milliken & Co. had said rising imports from China threaten to put U.S. and Caribbean manufacturers.
``We are going to see an escalation of rhetoric about trade,'' Robert E. Rubin, former U.S. Treasury Secretary and now an executive at Citigroup, said after a speech to the Council on Foreign Relations in New York. ``There's more of a threat about this than I thought three months ago. Protectionsim would be very damaging to us.''
Some U.S. companies and lawmakers blame China's currency policy -- which pegs the yuan at about 8.3 to the dollar -- for the increasing U.S. trade deficit and some of the 2.5 million manufacturing job losses during President George W. Bush's tenure. Traders have said the Bush administration has endorsed a weaker dollar as a way to boost exports and keep the economy growing.
``Any move toward protectionist policies throws sand into the wheels of global growth,'' said Peter Clay, a currency strategist in Sydney at ABN Amro Holding NV. ``That creates massive damage for U.S. markets and the U.S. dollar.''
Yen's Advance
The U.S. Dollar Index, which measures the dollar against a basket of six major currencies, fell to 90.22 from 90.23. The index is down more than 11 percent this year. In addition to its slide versus the euro, the dollar has lost 9 percent compared with the yen.
The yen weakened in Asian trading today as the Nikkei 225 Stock Average declined for the third day in four, trimming its gains for the year to 13 percent. Overseas investors have been net buyers for 28 of the past 30 weeks.
Japan has responded to the yen's advance this year by selling its currency and buying dollars. The European Central Bank hasn't sold euros since 2000. In September that year, the G- 7 bought euros, in addition to the ECB's own purchases.
Jean-Claude Trichet, who became president of the European Central Bank this month, suggested he's not concerned with the euro's level. ``When we have a policy of a strong and stable euro, which we are pursuing, we are paving the way in the medium and long run for medium- and long-term rates that are at a lower level,'' Trichet said on Nov. 6.
The Bank of Japan has sold a record 16.2 trillion ($149.8 billion) this year through October to stem the yen's 8.9 percent gain. ``Japan is going to be in the market between 107 and 108 yen or so,'' Barclays Global's Smith said.
Impact on Companies
For some U.S. companies, the dollar's drop is a welcomed event. United Parcel Service Inc., the world's largest package- delivery company, yesterday said that currency-related gains boosted its revenue by $79 million in the third-quarter and its profit by $18 million compared with the year-ago period.
McDonald's Corp., the world's largest restaurant chain, said the slide accounted for 4 percentage points of the 11 percent sales gain in the third quarter.
European Exports
In Europe, PSA Peugeot Citroen, Nokia Oyj and Royal Philips Electronics NV are among companies that have said the euro's appreciation is hurting business.
Peugeot, Europe's second-largest automaker, cut its full- year profit forecast last month, partly because of a stronger currency. Nokia said earlier this month that quarterly sales may decline for the same reason. Philips blamed the euro's rise for operating losses in most of its businesses last quarter.
``If this situation drags on it could wipe out any traces of a recovery,'' said Giancarlo Losma, chief executive officer of Losma SpA, an Italian maker of air filters for car makers such as Fiat SpA and Renault SA. ``We can only sit and watch and hope it goes away.'' He spoke in a telephone interview from Rome.
The dollar's decline also comes amid speculation fighting in Iraq may intensify, spurring terrorist attacks against the U.S. and its coalition allies. Two U.S. soldiers were killed in Iraq on Monday, a day after a report that al-Qaeda may strike Britain, Italy and Japan. The dollar is down 6 percent against the euro since Bush's May 1 announcement that major military operations in Iraq were over.
An audiotape broadcast Monday on Dubai's Al-Arabiya television containing a message purportedly from Saddam Hussein said U.S.-led forces in Iraq had reached a ``dead end,'' and called for a holy war against the occupation. The U.S. Central Intelligence Agency said it is unable to confirm whether the tape was of the ousted Iraqi leader.
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