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Dollar Falls to 12-Year Low Against Yen on Hedge Fund Failures

By Stanley White and Kosuke Goto
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March 13 (Bloomberg) -- The dollar fell to the weakest since 1995 against the yen and a record low versus the euro after a Carlyle Group hedge fund failed to reorganize debt.

The currency also slid to an all-time low against the Swiss franc after Carlyle's mortgage-bond fund said lenders will seize its assets. Government reports today will probably show U.S. retail sales growth slowed and unemployment claims rose. Lehman Brothers Holdings Inc. and JPMorgan Chase & Co. last week joined a growing list of banks predicting a recession.

``Investors are getting out of dollar assets and this is going to lead to a dollar crash,'' said Tetsuhisa Hayashi, chief currency manager of foreign-exchange trading in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's largest publicly traded lender. ``Retail sales cannot be good.''

The U.S. currency fell to 100.29 yen at 2:37 p.m. in Tokyo after reaching 100.03, the lowest since Nov. 10, 1995, from 101.79 in New York late yesterday. The dollar declined as low as $1.5586 per euro, the weakest level since the European currency's 1999 debut. The euro dropped to 156.10 yen from 158.30.

The dollar bought 1.0106 Swiss francs, after reaching a record low of 1.0091. The British pound rose to $2.0298 from $2.0270. The Australian dollar advanced to 93.56 U.S. cents from 93.33 cents after data showed companies in the Southern Hemisphere country hired extra workers for a record 16th month.

The Singapore dollar rose to a record of S$1.3795 per dollar. The yuan gained to 7.0950 against the dollar, strengthening beyond 7.1 for the first time since the fixed exchange rate ended in 2005.

Carlyle Talks

The yen climbed as much as 1.8 percent against the dollar as Amsterdam-listed Carlyle Capital Corp. said talks with lenders had failed and it has defaulted on about $16.6 billion of debt through March 12. Drake Management LLC, the New York based-firm, said yesterday it may shut a $3 billion hedge fund, while Amsterdam-based GO Capital Asset Management BV blocked clients from withdrawing cash from one of its funds.

The Central Bank of Jordan is reducing the amount of dollars in its foreign reserves because of the declining value of the U.S. currency and the need to service debt, Deputy Governor Faris Sharaf said yesterday in an interview in Amman, Jordan. The Jordanian dinar has been pegged to the dollar since October 1995.

A Qatar central bank official denied an Emirates Business 24/7 report that policy makers from six Gulf Cooperation Council nations will consider currency revaluation when they meet next week. The dollar's 10 percent drop against the euro last year has stoked inflation in the region.

China's Reserves

China wants to invest more of its reserves abroad, Minister of Commerce Chen Deming said yesterday. China's reserves are the world's largest at $1.5 trillion.

``We're probably going to remain in the situation where long-term money moves away from the dollar,'' said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. `There is a lot of discussion in the market about China. There's also a lot of discussion about the Middle East.''

The U.S. currency may weaken below 100 yen, he said.

U.S. retail sales rose 0.2 percent in February after a 0.3 percent gain in the previous month, according to a Bloomberg survey before the Commerce Department data today. A separate report from the Labor Department is forecast to show the number of Americans filing first-time claims for jobless benefits rose to 357,000 last week from 351,000.

The Dollar Index traded on ICE Futures in New York, which compares the currency to those of six trading partners, declined to a record low of 71.99.

`Real Trouble'

Since hitting a 4 1/2-low on June 22, the yen has rallied 24 percent against the dollar. Jamie Dimon, chief executive officer of JPMorgan, said at a dinner in Washington yesterday the U.S. economy is now in a recession and financial institutions are about half-way finished with solving their problems.

``The dollar looks in real trouble and there is no obvious resistance level against the euro,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``I don't think you can pick a level for where it will stop.''

U.S. President George W. Bush said yesterday in an interview with the U.S. Public Broadcasting Service that the dollar is ``adjusting'' and its decline isn't ``good tidings'' for the strong dollar policy that he favors.

``Bush's comments were about as lukewarm as you can get,'' said Brian Dolan, research director at Forex.com, a unit of currency trading firm Gain Capital in Bedminster, New Jersey. ``Some may have interpreted his `adjusting' comment as tacit acceptance that we're in a broad-based dollar devaluation.''

The dollar also fell as firms from Citigroup Inc. to Goldman Sachs Group Inc. said yesterday the Federal Reserve's plan to inject $200 billion into the banking system may fail to break the freeze in money-market lending.

U.S. Rates

Traders bet the Fed will cut its rate as much as 0.75 percentage point on March 18 to avert a recession. The likelihood of a reduction to 2.25 percent was 76 percent, according to futures on the Chicago Board of Trade. The balance of bets is on a cut to 2.5 percent.

The Fed's measures are ``not a panacea, more like an aspirin for the dollar,'' analysts led by Daniel Tenengauzer, New York-based head of global currency strategy at Merrill Lynch & Co., wrote in a research note. The dollar may decline to $1.57 per euro this month, Merrill forecast on March 6.

Japanese authorities sold the currency on all four occasions since 1995 when the yen approached the 100 mark in a bid to support exporters including Toyota Motor Corp., the world's second-biggest automaker.

``We must continue cost cuts by all means, but the currency has reached the level where we have to think about other measures,'' Toyota President Katsuaki Watanabe told reporters in Tokyo today. A 1 yen gain in the Japanese currency against the dollar cuts Toyota's annual operating profit by 35 billion yen ($349 million), according to the automaker