BL: Dollar Falls for a Fifth Day on Speculation Fed to Slash Rates
By Kosuke Goto and Stanley White
March 18 (Bloomberg) -- The dollar fell for a fifth day against the yen and the euro on speculation the Federal Reserve will cut its benchmark interest rate at least 1 percentage point today to reduce the risk of bank failures.
The U.S. currency also traded near a record low against the Swiss franc after Lehman Brothers Holdings Inc. shares slumped 19 percent yesterday. Traders increased bets the Fed will cut the target for the overnight lending rate between banks to 2 percent, after an emergency cut in its discount rate on the weekend.
``Financial turmoil will continue, pushing down the dollar and propelling the yen,'' said Junya Ota, who oversees the equivalent of about $7 billion at Mitsubishi UFJ Asset Management Co., a unit of Japan's largest publicly traded lender by assets.
The U.S. currency fell to 96.99 yen at 12:24 a.m. in Tokyo from 97.33 late yesterday, when it touched 95.76 yen, the lowest since Aug. 15, 1995. The dollar weakened to $1.5773 per euro, after reaching $1.5903 yesterday, the weakest level since the euro started trading in 1999.
The dollar may fall to 90 yen in a few weeks, Ota said.
Japan's Finance Minister Fukushiro Nukaga said today he's concerned about recent ``excessive'' currency-market movements. Nippon Steel Corp., the world's second-biggest maker of the alloy, said yesterday the surging yen may damp earnings as its gains hurt customers such as Japanese automakers.
The South Korean won gained 1.1 percent to 1,018.25 per dollar after Deputy Finance Minister Shin Je Yoon said the government and central bank will take action against the currency's decline if the market doesn't ``stabilize.''
Fed Outlook
The U.S. currency traded at 0.9791 Swiss franc, approaching a record low of 0.9638. Traders saw a 78 percent likelihood the Fed will cut its target rate by 1 point at today's meeting, according to futures on the Chicago Board of Trade. There is a 22 percent chance the rate will be lowered 1.25 points, futures show.
The Fed lowered the rate it charges commercial banks for loans by a quarter-point to 3.25 percent on the weekend. Lehman Chief Executive Officer Richard Fuld yesterday said easier Fed lending conditions will take ``the liquidity issue for the entire industry off the table.''
``The best way of positioning for the uncertainty surrounding this decision is to sell the dollar against the yen,'' said analysts led by London-based global head of currency strategy David Woo at Barclays Capital in a research note yesterday. ``If the Fed eases policy aggressively, the dollar will be under pressure across currencies.''
Housing Slump
Interest rates are 0.5 percent in Japan, 4 percent in Europe, 7.25 percent in Australia, 8.25 percent in New Zealand and 2.75 percent in Switzerland. The Japanese government nominated Koji Tanami, a former vice finance minister, to replace Bank of Japan Governor Toshihiko Fukui when his term expires tomorrow.
``The leading opposition party may not accept Tanami,'' said Kenta Inoue, economist and currency analyst in Tokyo at Mitsubishi UFJ Securities, a unit of Japan's largest publicly listed lender. ``The foreign exchange market has been contemplating the possibility the BOJ will have no governor, so the impact on the yen may be limited.''
The U.S. currency has lost 15 percent against the euro and 17 percent versus the yen in the past year as the worst housing slump since 1991 forced the Fed to cut its benchmark rate 2.25 percentage points.
The dollar also weakened on speculation data will show a real-estate slump pushing the U.S. economy into a recession. U.S. housing starts fell to 995,000 units at an annual rate in February, the lowest since 1991, according to a Bloomberg survey. The Commerce Department will release the data at 8:30 a.m. in Washington today.
Subprime Losses
Losses and asset writedowns at the world's biggest banks have swelled to $195 billion since the start of 2007, when the housing slump caused an increase in mortgage defaults, according to Bloomberg data.
``There's nothing to indicate the dollar has hit bottom,'' said Tohru Sasaki, chief currency strategist in Tokyo at JPMorgan Chase & Co. and a former chief currency trader at the Bank of Japan. ``Evidence that writedowns are growing is a negative factor. Weak economic data still have the potential to send the dollar lower.''
The U.S. currency may fall to 95 yen this week, he forecast.
The dollar recovered some ground yesterday as stocks pared losses. The Standard & Poor's 500 index fell 0.9 percent yesterday, paring a drop of as much as 2.4 percent.
The dollar's decline against the yen may stall this week, said Hiroshi Koga, head of the foreign exchange department of Athena FX Co., a Tokyo-based brokerage that handles 3.8 billion yen ($39 million) in customers money. A so-called candle chart, that displays a currency's high, low, open and close for each day, indicates a recovery, said Koga.
Candle Chart
``The dollar selling versus the yen was overshot,'' said Koga. ``It will likely rebound to 99 yen in a few days.''
The candle chart yesterday showed a so-called ``long lower shadow and a short upper shadow,'' a formation that signals selling of the dollar may fade. Separately, the dollar's 14-day relative strength index against the yen was at 21.2 today. A level below 30 signals losses may be excessive.
To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net
Last Updated: March 17, 2008 23:39 EDT
AI
