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Dollar may fall on weak manufacturing { December 2007 } Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=20670001&refer=&sid=aGdYvQT0O5Nohttp://www.bloomberg.com/apps/news?pid=20670001&refer=&sid=aGdYvQT0O5No
Dollar May Fall On Report Showing U.S. Manufacturing Weakening
By Daniel Kruger
Jan. 3 (Bloomberg) -- The dollar may fall ahead of a report expected to show the U.S. manufacturing sector slowed in December, adding to speculation the Federal Reserve will lower interest rates later this year.
The Institute for Supply Management will probably say U.S. manufacturing didn't expand last month, after contracting for the first time since April 2003. The survey may show a reading of 50, the dividing line between expansion and contraction, for December, compared with 49.5 in November, according to a Bloomberg News survey of economists.
``If you see a weak ISM that could push the dollar lower,'' said Daniel Katzive, a currency strategist at UBS Securities LLC in Stamford, Connecticut.
The dollar traded at 118.83 yen at 6:31 a.m. in Hong Kong from 118.85 yesterday. The dollar traded at $1.3277 per euro from $1.3273 late yesterday in New York. The yen was unchanged at 157.75 per euro. The yen touched 157.90 per euro yesterday, a new low against the 13-nation currency.
Financial markets in Japan are closed for a third day for a bank holiday after the start of the new year.
The U.S. central bank will reduce its overnight lending rate between banks by the end of the year to 4.75 percent, according to sixteen of the 22 so-called primary dealers, including Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and UBS Securities LLC, who trade directly with the Fed.
The Fed has kept its overnight lending rate unchanged at 5.25 percent at its past four meetings, ending a two-year cycle of borrowing-cost increases.
U.S. economic expansion slowed to 2 percent in the third quarter, and 2.6 percent in the second quarter.
ECB Expectations
``It's not only expectations of interest rate cuts by the Fed but anticipation of interest rate increases by the ECB,'' said Mark Meadows, an analyst at currency-trading company Tempus Consulting in Washington.
ECB Policy makers lifted their benchmark refinancing rate by a quarter percentage point to 3.5 percent on Dec. 7, the sixth rate increase since December 2005.
The yield premium investors earn on benchmark two-year U.S. bonds over similar-maturity German bunds was 0.93 percentage point yesterday, compared with 0.909 percentage point on Dec. 29.
Employers in the U.S. added 115,000 workers to their payrolls in December, ending a quarter in which job creation was the slowest in three years, according to the median estimate of economists surveyed by Bloomberg before the Jan. 5 report. The economy created 132,000 jobs in November.
Benefiting The Euro
The euro extended its gains yesterday after ECB council member Erkki Liikanen suggested in an interview with broadcaster YLE that wage demands in Germany may spark inflation.
``Certainly the ECB will increase rates,'' said Matthew Lifson, chief currency trader at PNC Capital Markets in Pittsburgh. ``It's really an interest rate play'' that's benefiting the euro.
Growth in the euro region was 2.7 percent in the third quarter. The Eurostat in Luxembourg releases the final estimate of third-quarter GDP next week.
The jobless rate in Germany fell to its lowest in more than four years in December, a government report tomorrow may show, according to a Bloomberg survey of economists.
The European currency last year gained the most against the yen since its debut in 1999 as the ECB raised rates five times, compared with a single increase by the Bank of Japan.
The yen fell 11.2 percent against the euro and 1.1 percent against the dollar in 2006.
Last Updated: January 2, 2007 17:37 EST
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