Dollar Falls; Fed May Stop Lifting Rates in 2006 as ECB Raises
*Couple interesting things approaching in March, potential Petrodollar which challenges the Greenback of the United States of America and the fact that we will no longer realize how much money is being printed and pumped into the markets!!!>>>
Dollar Falls; Fed May Stop Lifting Rates in 2006 as ECB Raises
Jan. 3 (Bloomberg) -- The dollar declined on speculation the Federal Reserve will stop raising interest rates this year as the European Central Bank adds to December's first increase since 2000.
Higher rates in Europe would narrow the gap in borrowing costs with the U.S. that helped push the dollar 14 percent higher against the euro last year. The Fed issues minutes today for a Dec. 13 meeting at which it stopped saying rates were at a level that would stimulate growth, a sign it is closer to a change in policy.
``We are looking forward to the weaker U.S. dollar over the course of 2006,'' said Stephen Halmarick, co-head of economic and market analysis in Sydney at Citigroup Global Markets Australia Ltd. After the Fed lifts borrowing costs one more time ``that's probably going to be the peak.''
The dollar traded at $1.1888 per euro as of 2:18 p.m. in Tokyo, according to data Bloomberg compiled, from $1.1820 late yesterday in New York. That was the biggest slide since Dec. 12. A public holiday in Japan exaggerated swings in exchange rates, said Lee Wai Tuck, a currency strategist at Forecast Singapore Ltd.
Trading in Asia today was probably less than 60 percent of the average $1.9 trillion because of a Japanese holiday, Lee said.
The dollar also traded at 117.23 yen, down from 117.88 yen.
The U.S. currency may fall to $1.36 against the euro and 100 yen by the end of the year, Citigroup's Halmarick said.
Fed Minutes
The Fed's statement on Dec. 13 changed the wording on rates from its Nov. 1 release, when it said ``policy accommodation can be removed at a pace that is likely to be measured.'' Minutes of the prior Fed meeting released Nov. 22 showed members discussed the need ``before long'' to change their outlook for the benchmark rate, with some worried about the risk of raising it too far.
``The minutes could be a bit of a sour point for the dollar,'' said Sharada Selvanathan, a currency strategist in Singapore at BNP Paribas SA. ``The market knows the Fed has to stop hiking rates soon and its coming closer to the end so maybe there will be more talk of this in the minutes.''
The euro will advance to $1.19 by tomorrow and $1.22 by the end of the first quarter, she said.
The Fed lifted rates to 4.25 percent last month, the 13th consecutive quarter-percentage point increase since June 2004.
The ECB raised its benchmark for the first time since 2000 on Dec. 1, to 2.25 percent, while the Bank of Japan has kept rates near zero percent since 2001.
U.S. Economic Data
Losses in the dollar may be limited by speculation economic reports this week will show manufacturing expanded and the world's largest economy added jobs to U.S. payrolls in December.
The U.S. Institute for Supply Management is forecast to report today a reading of 57.5 for its December index of manufacturing. That compares with 58.1 in November and is higher than the 55.7 average for all of 2005.
A Labor Department report on Jan. 6 will show U.S. employers added 200,000 new workers in December, according to the median estimate of 51 economists surveyed by Bloomberg. The economy added an average of 167,000 jobs a month last year. Economists predict the jobless rate will hold at 5 percent.
``I still see a U.S. dollar rally,'' said Richard Grace, senior currency strategist at Commonwealth Bank of Australia in Sydney. With the ``economy strong, the market will continue to buy U.S. dollars.'' The euro will weaken to $1.15 and the yen to 122 against the dollar by the end of March, Grace forecast.
Senior ECB officials have fueled speculation growth in Europe is robust enough for rates to rise, buoying the euro.
`Benefit the Most'
``The euro probably is going to be one of the currencies that benefit the most'' this year, Halmarick said. ``We do expect another couple of rate hikes from the ECB this year.''
The German government will this month say it expects the economy in 2006 to grow faster than previously estimated, Spiegel magazine reported in its latest edition.
The economy may expand as much as 1.8 percent, the magazine said, citing a draft of an Economics Ministry annual report. Current official forecasts show the economy growing 1.2 percent next year, after 0.8 percent in 2005.
``I can't guarantee that interest rates will stay eternally at their current low levels,'' ECB council member Guy Quaden said in an interview with Trends-Tendances, a weekly Belgian magazine, published on Dec. 29. Quaden's spokeswoman, Kristin Bosman, confirmed the comments.
``We will always act if we see risks to price stability,'' ECB Chief Economist Otmar Issing told Germany's Boersen Zeitung daily in the text of an interview e-mailed to news agencies Dec. 30. He also said last month's decision to raise rates ``shouldn't be seen as a step that will automatically lead to further moves.''
To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net; Chris Young in Sydney at cyoung12@bloomberg.net
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