Dollar Declines to 12-Year Low Versus Yen, Record Against Euro
By Ye Xie and Bo Nielsen
March 15 (Bloomberg) -- The dollar sank below 99 yen, to the weakest in 12 years, and slumped to a record low versus the euro after JPMorgan Chase & Co. and the New York Federal Reserve bailed out Bear Stearns Cos., as credit market losses widen.
The U.S. currency yesterday also plunged to below one Swiss franc for the first time as traders speculated the Fed will slash interest rates one percentage point next week to avert a recession. The dollar set record lows against the euro the past four days as investor confidence tumbled, sending U.S. stocks lower for a third straight week and driving gold to a record high of $1,009 an ounce.
``What you have here is a crisis of confidence,'' said Jeff Gladstein, global head of foreign-exchange trading at AIG Financial Products in Wilton, Connecticut, in an interview with Bloomberg Radio. ``It's more of a sell-the-U.S. type of mentality going on, more so than just bash the greenback.''
The dollar sank to 98.90 yen yesterday, the lowest since September 1995, and ended the week at 99.09. It lost 3.5 percent this week, the most since November, from 102.67 yen on March 7. The U.S. currency fell 2 percent this week to $1.5674 per euro after touching $1.5688 yesterday, the weakest since the European currency's 1999 debut. It was the fifth straight weekly decline against the euro, the longest slide since November.
The currency fell to an all-time low of 0.9988 francs yesterday. The Dollar Index, which tracks the currency against six major counterparts, fell to 71.58 yesterday, the lowest since its inception in 1973.
`Big Kahuna'
The dollar has lost about 16 percent against the euro and 15 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 to bolster the economy, lowering returns on dollar deposits.
``Confidence in the dollar is down,'' said Kenneth Rogoff, an economics professor at Harvard University in Cambridge, Massachusetts, in an interview on Bloomberg TV. ``We're seeing the big kahuna in the currency markets that many of us have been calling for.''
The New York Fed agreed to provide financing through JPMorgan for up to 28 days, the bank said in a statement yesterday. Bear Stearns Chief Executive Officer Alan Schwartz said in a separate statement that the firm's ``liquidity position'' had ``significantly deteriorated.'' Bear Stearns shares fell 47 percent in New York trading yesterday.
2 Percent Fed Rate
The likelihood the Fed will cut its target by one percentage point to 2 percent at the March 18 meeting rose to 54 percent yesterday, from 6 percent a week earlier, futures on the Chicago Board of Trade showed. The balance of bets is on a cut to 2.25 percent. The central bank has reduced rates five times since September, from 5.25 percent. The euro region's main rate is 4 percent.
At 1.48 percent, two-year Treasuries yielded 1.73 percentage point less than similar-maturity German debt, close to the widest gap since 1993.
The yen and franc gained against major counterparts this week, rising more than 4 percent against Brazil's real, as losses in credit markets and stocks led traders to exit so-called carry trades. In carry trades, investors obtain cheap loans in countries with low rates and use the funds to buy higher-yielding assets elsewhere. Japan's main rate is 0.5 percent, compared with 11.25 percent in Brazil. Switzerland's is 2.75 percent.
Volatility Rises
The Standard & Poor's 500 index lost 0.4 percent this week. U.S. debt rallied, pushing two-year yields to the lowest since July 2003.
Currency volatility surged in recent weeks, increasing the risk of carry trades. One-month volatility on dollar-yen options was 18 percent, up from about 10.5 percent at the end of last month. Currency swings can erase profits from rate gaps.
The dollar briefly rebounded yesterday on speculation global central banks will support it for the first time since 1995, when it sank to a post-World War II low of 79.75 yen.
Policy makers stepped up their rhetoric to break the slide in the past week.
European Central Bank President Jean-Claude Trichet said on March 13 that ``disorderly'' moves among currencies were ``undesirable.'' He spoke in a French-language interview with Le Point magazine. Japanese Finance Minister Fukushiro Nukaga said yesterday abrupt currency moves are ``bad'' for economic growth.
The Group of Seven, which next meets April 12-13 in Washington, said when they met in February in Tokyo that ``excess volatility and disorderly'' movements are ``undesirable.'' They also urged to China to accelerate the yuan's appreciation.
The G-7 may signal its intent to consider coordinated intervention, strategists at UBS AG, the world's second-biggest currency trader, wrote in a March 3 report. The group comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada.
President George W. Bush said yesterday the U.S. believes in a ``strong dollar.''
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net; Bo Nielsen in New York at bnielsen4@bloomberg.net
Market Data 
Markets 
AI
