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Bet on fed cut as dollar falls to record low { September 2007 } Original Source Link: (May no longer be active)
http://bloomberg.com/apps/news?pid=20601087&sid=aV_plksczBD8&refer=homehttp://bloomberg.com/apps/news?pid=20601087&sid=aV_plksczBD8&refer=home
Dollar Falls to Record Low Versus Euro as Bets on Fed Cut Mount
By Bo Nielsen and Ye Xie
Oct. 26 (Bloomberg) -- The dollar fell to a record low against the euro on signs climbing oil prices and a slump in housing are hurting U.S. consumer confidence, bolstering the case for the Federal Reserve to cut interest rates again.
The U.S. currency headed for a third straight weekly decline versus the euro on speculation the housing recession will erode corporate earnings. Countrywide Financial Corp., the biggest U.S. mortgage lender, reported its first quarterly loss in 25 years as borrowers defaulted on loans.
``The dollar-negative momentum continues to build up,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``We had a string of pretty ugly numbers, both from the real economy side and the financial side. That is weighing on the dollar.''
The dollar weakened to $1.4387 per euro at 12:22 p.m. in New York, from $1.4324 late yesterday, and touched an all-time low of $1.4393. It has declined against 15 of the 16 major currencies this week, falling about 5 percent against South Africa's rand. Ruskin said the dollar may reach $1.50 per euro in March.
The dollar has dropped against all of the 16 most-actively traded currencies this year. The U.S. Dollar Index, measuring its performance against its six major peers, has lost 8 percent in 2007 and set a record low of 76.977 today.
Sales of previously owned homes fell last month by almost twice as much as economists forecast, while the median price dropped the most in almost a year, statistics from the National Association of Realtors showed this week.
``One-way Street''
``The market is in a one-way street against the dollar,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``Further dollar weakness is pretty much a certainty.''
Osborne said the dollar may push past $1.44 per euro today, triggering pre-set orders to sell the U.S. currency. The euro may advance to $1.456 before the Fed meets on Oct. 31, he said.
The dollar will rebound to $1.40 by June, according to the median forecast of 47 analysts and brokerages in a Bloomberg survey.
Politicians including French President Nicolas Sarkozy have said exports from the $10 trillion euro-region economy may suffer as the euro gains. At the same time, the cheaper dollar has buoyed U.S. exports. The nation's trade deficit in August dropped to $57.6 billion, the narrowest since January, the Commerce Department said Oct. 11.
Dollar and Earnings
The weaker dollar helped push Philip Morris International's operating profit up 19 percent to $2.5 billion in the third quarter, according to New York-based Altria Group Inc., the parent company. Sales at Egide SA's American unit fell 12 percent last quarter partly because of the dollar's drop, the French maker of ceramic packages said.
The U.S. currency fell to 114.08 yen today, from 114.18 yen yesterday. Oil rose above $92 a barrel for the first time in New York pushing Canada's dollar to the highest since 1974 versus the U.S. dollar.
Finance ministers and central bankers from the Group of Seven major industrialized nations last week refrained from mentioning the euro in their official statement after meeting in Washington and called for faster appreciation of China's currency. The yuan had its biggest weekly advance in six weeks, to 7.4877 per dollar, reaching the strongest since China ended a peg to the dollar in July 2005.
Investor Confidence
A recovery in global stocks this week also gave investors confidence to resume carry-trade bets, where they buy assets in countries with high yields, using loans in low-yielding currencies such as the yen. The Standard and Poor's 500 Index has gained 1.4 percent this week, following a 3.9 percent tumble last week.
The yen touched a one-week low of 164.57 per euro, from 163.54 yesterday.
The Australian dollar was the best performer versus the dollar today, rising 0.8 percent and setting a 23-year high of 91.72 U.S. cents. An Australian inflation report this week raised speculation the central bank will boost the benchmark rate a quarter-percentage point to 6.75 percent next month.
``It looks like carry is back on,'' said Sophia Hardy, a currency strategist at UBS AG in Stamford, Connecticut.
Japan's consumer prices fell for an eighth consecutive month in September, dampening the outlook for an increase in interest rates. Japan's key rate is 0.5 percent.
The European Central bank kept its benchmark rate at 4 percent on Oct. 4 and interest-futures show traders bet the bank will increase rates to 4.25 percent by December.
A Reuters/University of Michigan index of U.S. consumer sentiment showed confidence was the weakest this month since May 2006. The measure was 80.9 in October, falling from 83.4 in September.
Interest-rate futures traded on the Chicago Board of Trade show a 94 percent chance the Fed will lower its rate a quarter- percentage point to 4.50 percent this month, after a half-point cut on Sept. 18. Traders see a 6 percent chance of a half-point cut.
Last Updated: October 26, 2007 12:28 EDT
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