UPDATE!!! - Dollar drops on talk of hedge fund trouble
Greenback plays off weak U.S. housing
By Wanfeng Zhou, MarketWatch
Last Update: 1:23 PM ET Nov 17, 2006
UPDATE: Rumor is that Citadel Investment Group might be having trouble with some of its energy stuff but no confirmation yet .Citadel is the rumor but it might be centered around them winding down Amaranth positions it looks like its still just speculation.
NEW YORK (MarketWatch) -- The dollar fell against the euro and yen Friday on market talk that a major hedge fund is in trouble.
Adding pressure to the U.S. currency was a government report that showed starts of new homes plunged to more than a six-year low last month.
"Rumors of a major U.S. hedge fund collapse appear to be behind the dollar's latest dip," said Brian Dolan, director of research at Forex.com, a division of Gain Capital. But "you have to take it with a grain of salt. It smells a bit fishy to me to be honest."
In New York trading, the dollar was quoted at 117.64 yen, compared with 118.14 yen late Thursday. The euro changed hands at $1.2824, compared with $1.2798.
The pound traded at $1.8948, compared with $1.8885. The dollar was at 1.2437 Swiss francs, vs. 1.2474 francs.
The euro fetched 150.86 yen compared with 151.2 yen. See live foreign-exchange rates.
Analysts at research firm Action Economics said there's talk that the hedge fund in question is bailing out of currency carry trades -- in which speculators make profits by borrowing lower yielding currencies such as the yen and the Swiss franc and reinvesting in high-yielding currencies.
"Reports are the fund in question could be diverting capital to cover losses in wrong-footed energy trades," Action said. "Dealers report good dollar/yen selling from large U.S. names." Dolan said weakness in the dollar is likely to be "short-lived" against European currencies.
However, the greenback may fall further against the yen on speculation that the upcoming G20 central bankers' meeting Australia this weekend may again call for further appreciation of Asian currencies.
Housing starts plunge
Earlier, the Commerce Department said housing starts fell 14.6% in October to a seasonally adjusted annual rate of 1.486 million homes, the largest percentage decline in permits in seven years.
In addition, building permits were down 28%. Economists had been forecasting a 4.5% drop in starts to 1.69 million and a 1% decline in permits to 1.62 million. See full story.
The weaker-than-expected data "support our view that the Fed will likely take out some insurance against a 'hard landing' by easing rates in 2007," said Michael Carey, chief economist of North America at Calyon Corporate and Investment Bank.
"The slump in homebuilding is consistent with the very high level of homes-for-sale on the market," he said.
G20 meeting in view
Elsewhere, U.S. Treasury deputy secretary Robert Kimmitt said China's currency will be discussed when he meets People's Bank of China governor Zhou Xiaochuan at the G20 meeting.
David Gilmore, senior currency strategist at Foreign Exchange Analytics, said there likely will be discussion about the yuan, the yen and the U.S. dollar at the meeting.
"But I don't think it'll make its way in any kind of formal statement," he said. Markets will be looking for "comments from officials attending to the meeting for clues as to what's been decided."
The meeting could pose "some downside risk to the dollar," he said. End of Story
Wanfeng Zhou is a markets reporter in New York.
Market Data 
Markets 
AI
